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, 20192020
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 0-17999
ImmunoGen, Inc.
Massachusetts | | 04-2726691 |
(State or other jurisdiction of incorporation or | | (I.R.S. Employer Identification No.) |
830 Winter Street, Waltham, MA 02451
(Address of principal executive offices, including zip code)
(781) 895-0600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | | Trading Symbol | | Name of Each Exchange on Which Registered | |
| Common Stock, $.01 par value | | IMGN | |
| |
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 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 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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12-b2 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
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Shares of common stock, par value $.01 per share: 149,884,816174,542,115 shares outstanding as of July 31, 2019.30, 2020.
IMMUNOGEN, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 20192020
TABLE OF CONTENTS
| | | | |||||||
Item |
| |
| Page Number | |
| |
| Page Number | |
| | | | | | | | | ||
| | Financial Information | | | | | Financial Information | | | |
| | 2 | | | | 2 | | |||
| | | | | | | | | | |
| Consolidated Balance Sheets as of June 30, 2019 and December 31, 2018 | | 2 | | | Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019 | | 2 | | |
| | | | | | | | | | |
| | 3 | | | | 3 | | |||
| | | | | | | | | | |
| | 4 | | | | 4 | | |||
| | | | | | | | | | |
| Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 | | 5 | | | Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 | | 5 | | |
| | | | | | | | | | |
| | 6 | | | | 6 | | |||
| | | | | | | | | | |
| Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 24 | | | Management’s Discussion and Analysis of Financial Condition and Results of Operations | | 20 | | |
| | | | | | | | | | |
| | 34 | | | | 30 | | |||
| | | | | | | | | | |
| | 34 | | | | 30 | | |||
| | | | | | | | | | |
| | Part II | | | | | Part II | | | |
| | Other Information | | | | | Other Information | | | |
| | 34 | | | | 30 | | |||
| | | | | | | | | | |
| | 34 | | |||||||
| | | | | | |||||
| | 35 | | | | 32 | | |||
| | | | | | | | | | |
| | | 36 | | | | 33 | |
Forward looking statements
This report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts that are not yet determinable.
These statements also relate to our future prospects, developments, and business strategies. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” and other similar terms and phrases, including references to assumptions. These statements are contained in the “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections, as well as other sections of this report.
These forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from those contemplated by our forward-looking statements. These known and unknown risks, uncertainties, and other factors are described in detail in the “Risk Factors” section and in other sections of this report and our Annual Report on Form 10-K for the year ended December 31, 20182019 filed with the SEC on March 11, 2020. We as updated and/or supplemented in subsequent filings with the SEC. Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
1
ITEM 1. Financial Statements
IMMUNOGEN, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
In thousands, except per share amounts
| | | | | | | | | | | | |
|
| June 30, |
| December 31, |
| June 30, |
| December 31, | ||||
| | 2019 | | 2018 | | 2020 | | 2019 | ||||
ASSETS | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 239,825 | | $ | 262,252 | | $ | 219,506 | | $ | 176,225 |
Accounts receivable | |
| — | |
| 1,701 | |
| 313 | |
| 7,500 |
Unbilled revenue/reimbursement | |
| 2,474 | |
| 617 | |
| 5 | |
| 1,001 |
Contract asset | | | — | | | 500 | ||||||
Contract assets | | | 1,042 | | | 3,631 | ||||||
Non-cash royalty receivable | | | 10,430 | | | 9,249 | | | 14,079 | | | 15,116 |
Prepaid and other current assets | |
| 6,649 | |
| 4,462 | |
| 6,426 | |
| 5,425 |
Total current assets | |
| 259,378 | |
| 278,781 | |
| 241,371 | |
| 208,898 |
Property and equipment, net of accumulated depreciation | |
| 10,052 | |
| 12,891 | |
| 5,902 | |
| 6,993 |
Operating lease right-of-use assets | | | 16,389 | | | — | | | 14,864 | | | 15,587 |
Other assets | |
| 1,850 | |
| 3,709 | |
| 7,591 | |
| 3,784 |
Total assets | | $ | 287,669 | | $ | 295,381 | | $ | 269,728 | | $ | 235,262 |
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY | | | | | | | ||||||
LIABILITIES AND SHAREHOLDERS’ DEFICIT | | | | | | | ||||||
Accounts payable | | $ | 7,809 | | $ | 11,365 | | $ | 12,739 | | $ | 9,933 |
Accrued compensation | |
| 19,564 | |
| 11,796 | |
| 4,321 | |
| 8,991 |
Other accrued liabilities | |
| 14,681 | |
| 20,465 | |
| 15,363 | |
| 13,932 |
Current portion of deferred lease incentive | |
| — | |
| 837 | ||||||
Current portion of liability related to the sale of future royalties, net of deferred financing costs of $715 and $753, respectively | | | 29,484 | | | 25,880 | ||||||
Current portion of liability related to the sale of future royalties, net of deferred financing costs of $470 and $635, respectively | | | 55,213 | | | 41,274 | ||||||
Current portion of operating lease liability | | | 2,761 | | | — | | | 3,163 | | | 2,971 |
Current portion of deferred revenue | |
| 317 | |
| 317 | |
| 80 | |
| 309 |
Total current liabilities | |
| 74,616 | |
| 70,660 | |
| 90,879 | |
| 77,410 |
Deferred lease incentive, net of current portion | |
| — | |
| 4,675 | ||||||
Deferred revenue, net of current portion | |
| 145,614 | |
| 80,485 | |
| 126,535 | |
| 127,123 |
Operating lease liability - net of current portion | | | 23,334 | | | — | ||||||
Convertible 4.5% senior notes, net of deferred financing costs of $29 and $36, respectively | | | 2,071 | | | 2,064 | ||||||
Liability related to the sale of future royalties, net of current portion and deferred financing costs of $1,175 and $1,536, respectively | | | 108,265 | | | 122,345 | ||||||
Operating lease liability, net of current portion | | | 20,171 | | | 21,798 | ||||||
Convertible 4.5% senior notes, net of deferred financing costs of $15 and $22, respectively | | | 2,085 | | | 2,078 | ||||||
Liability related to the sale of future royalties, net of current portion and deferred financing costs of $699 and $859, respectively | | | 51,994 | | | 82,267 | ||||||
Other long-term liabilities | |
| 1,943 | |
| 4,180 | |
| 2,587 | |
| 707 |
Total liabilities | |
| 355,843 | |
| 284,409 | |
| 294,251 | |
| 311,383 |
Commitments and contingencies (Note I) | | | | | | | | | | | | |
Shareholders’ deficit: | | | | | | | | | | | | |
Preferred stock, $.01 par value; authorized 5,000 shares; no shares issued and outstanding | |
| — | |
| — | ||||||
Common stock, $0.01 par value; authorized 200,000 shares; issued and outstanding 149,885 and 149,400 shares as of June 30, 2019 and December 31, 2018, respectively | |
| 1,498 | |
| 1,494 | ||||||
Preferred stock, $.01 par value; authorized 5,000 shares; 0 shares issued and outstanding as of June 30, 2020 and December 31, 2020 | |
| — | |
| — | ||||||
Common stock, $.01 par value; authorized 300,000 shares; issued and outstanding 174,540 and 150,136 shares as of June 30, 2020 and December 31, 2019, respectively | |
| 1,745 | |
| 1,501 | ||||||
Additional paid-in capital | |
| 1,200,860 | |
| 1,192,813 | |
| 1,314,586 | |
| 1,209,846 |
Accumulated deficit | |
| (1,270,532) | |
| (1,183,335) | |
| (1,340,854) | |
| (1,287,468) |
Total shareholders’ (deficit) equity | |
| (68,174) | |
| 10,972 | ||||||
Total liabilities and shareholders’ (deficit) equity | | $ | 287,669 | | $ | 295,381 | ||||||
Total shareholders’ deficit | |
| (24,523) | |
| (76,121) | ||||||
Total liabilities and shareholders’ deficit | | $ | 269,728 | | $ | 235,262 |
The accompanying notes are an integral part of the consolidated financial statements.
2
IMMUNOGEN, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
In thousands, except per share amounts
| | | | | | | | | | | | | | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | Three Months Ended | | Six Months Ended | | ||||||||||||||||
| | June 30, | | June 30, | | June 30, | | June 30, | | ||||||||||||||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
| 2020 |
| 2019 |
| 2020 |
| 2019 | | ||||||||
Revenues: | | | | | | | | | | | | | | | | | | | | | | | | | |
License and milestone fees | | $ | 5,079 | | $ | 1,321 | | $ | 5,158 | | $ | 12,861 | | $ | 945 | | $ | 5,079 | | $ | 1,228 | | $ | 5,158 | |
Non-cash royalty revenue related to the sale of future royalties | | | 10,412 | | | 7,242 | | | 18,900 | | | 14,432 | | | 14,075 | | | 10,412 | | | 27,072 | | | 18,900 | |
Research and development support | |
| 51 | |
| 388 | |
| 68 | |
| 771 | |
| 5 | |
| 51 | |
| 12 | |
| 68 | |
Clinical materials revenue | |
| — | |
| 336 | |
| — | |
| 1,038 | |||||||||||||
Total revenues | |
| 15,542 | |
| 9,287 | |
| 24,126 | |
| 29,102 | |
| 15,025 | |
| 15,542 | |
| 28,312 | |
| 24,126 | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | | |
Research and development | |
| 28,559 | |
| 38,701 | |
| 67,452 | |
| 83,532 | |
| 22,921 | |
| 28,559 | |
| 50,329 | |
| 67,452 | |
General and administrative | |
| 8,700 | |
| 8,652 | |
| 19,478 | |
| 18,647 | |
| 9,767 | |
| 8,700 | |
| 18,631 | |
| 19,478 | |
Restructuring charge | | | 19,342 | | | 686 | | | 19,901 | | | 2,417 | | | 699 | | | 19,342 | | | 1,524 | | | 19,901 | |
Total operating expenses | |
| 56,601 | |
| 48,039 | |
| 106,831 | |
| 104,596 | |
| 33,387 | |
| 56,601 | |
| 70,484 | |
| 106,831 | |
Loss from operations | |
| (41,059) | |
| (38,752) | |
| (82,705) | |
| (75,494) | |
| (18,362) | |
| (41,059) | |
| (42,172) | |
| (82,705) | |
Investment income, net | |
| 1,287 | |
| 814 | |
| 2,709 | |
| 1,476 | |
| 62 | |
| 1,287 | |
| 708 | |
| 2,709 | |
Non-cash interest expense on liability related to the sale of future royalties and convertible senior notes | | | (3,818) | | | (2,611) | | | (7,250) | | | (5,657) | | | (6,081) | | | (3,818) | | | (11,783) | | | (7,250) | |
Interest expense on convertible senior notes | | | (23) | | | (23) | | | (47) | | | (47) | | | (23) | | | (23) | | | (47) | | | (47) | |
Other income (expense), net | |
| 167 | |
| (1,052) | |
| 96 | |
| (515) | |
| 106 | |
| 167 | |
| (92) | |
| 96 | |
Net loss | | $ | (43,446) | | $ | (41,624) | | $ | (87,197) | | $ | (80,237) | | $ | (24,298) | | $ | (43,446) | | $ | (53,386) | | $ | (87,197) | |
Basic and diluted net loss per common share | | $ | (0.29) | | $ | (0.31) | | $ | (0.59) | | $ | (0.61) | | $ | (0.14) | | $ | (0.29) | | $ | (0.31) | | $ | (0.59) | |
Basic and diluted weighted average common shares outstanding | |
| 148,129 | |
| 134,384 | |
| 147,972 | |
| 132,512 | |
| 174,354 | |
| 148,129 | |
| 171,055 | |
| 147,972 | |
Total comprehensive loss | | $ | (43,446) | | $ | (41,624) | | $ | (87,197) | | $ | (80,237) | | $ | (24,298) | | $ | (43,446) | | $ | (53,386) | | $ | (87,197) | |
The accompanying notes are an integral part of the consolidated financial statements.
3
IMMUNOGEN, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY
(UNAUDITED)
In thousands
| | | | | | | | | | | | | | |
| | | | | | | Additional | | | | | Total | ||
| | Common Stock | | Paid-In | | Accumulated | | Shareholders’ | ||||||
| | Shares | | Amount | | Capital | | Deficit | | (Deficit) Equity | ||||
Balance at December 31, 2017 |
| 132,526 | | $ | 1,325 | | $ | 1,009,362 | | $ | (1,028,582) | | $ | (17,895) |
Transition adjustment for ASC 606 | | — | | | — | | | — | | | 14,090 | | | 14,090 |
Net loss |
| — | |
| — | |
| — | |
| (38,613) | |
| (38,613) |
Issuance of common stock pursuant to the exercise of stock options |
| 421 | | | 4 | | | 2,255 | |
| — | |
| 2,259 |
Stock option and restricted stock compensation expense |
| — | | | — | | | 3,746 | |
| — | |
| 3,746 |
Directors' deferred share units converted | | 77 | | | 1 | | | (1) | | | — | | | — |
Directors’ deferred share unit compensation |
| — | | | — | | | 102 | |
| — | |
| 102 |
Balance at March 31, 2018 |
| 133,024 | | $ | 1,330 | | $ | 1,015,464 | | $ | (1,053,105) | | $ | (36,311) |
Net loss |
| — | |
| — | |
| — | |
| (41,624) | |
| (41,624) |
Issuance of common stock pursuant to the exercise of stock options |
| 146 | | | 1 | | | 558 | |
| — | |
| 559 |
Issuance of common stock | | 15,755 | | | 158 | | | 162,382 | | | — | | | 162,540 |
Stock option and restricted stock compensation expense |
| — | | | — | | | 3,971 | |
| — | |
| 3,971 |
Directors' deferred share units converted | | 96 | | | 1 | | | — | | | — | | | 1 |
Directors’ deferred share unit compensation |
| — | | | — | | | 54 | |
| — | |
| 54 |
Balance at June 30, 2018 |
| 149,021 | | $ | 1,490 | | $ | 1,182,429 | | $ | (1,094,729) | | $ | 89,190 |
Net loss |
| — | |
| — | |
| — | |
| (46,807) | |
| (46,807) |
Issuance of common stock pursuant to the exercise of stock options |
| 28 | | | — | | | 124 | |
| — | |
| 124 |
Issuance of common stock | | — | | | — | | | (28) | | | — | | | (28) |
Stock option and restricted stock compensation expense |
| — | | | — | | | 4,308 | |
| — | |
| 4,308 |
Directors’ deferred share unit compensation |
| — | | | — | | | 102 | |
| — | |
| 102 |
Balance at September 30, 2018 |
| 149,049 | | $ | 1,490 | | $ | 1,186,935 | | $ | (1,141,536) | | $ | 46,889 |
Net loss |
| — | |
| — | |
| — | |
| (41,799) | |
| (41,799) |
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan |
| 351 | | | 4 | | | 1,355 | |
| — | |
| 1,359 |
Stock option and restricted stock compensation expense |
| — | | | — | | | 4,420 | |
| — | |
| 4,420 |
Directors’ deferred share unit compensation |
| — | | | — | | | 103 | |
| — | |
| 103 |
Balance at December 31, 2018 |
| 149,400 | | $ | 1,494 | | $ | 1,192,813 | | $ | (1,183,335) | | $ | 10,972 |
Net loss |
| — | |
| — | |
| — | |
| (43,751) | |
| (43,751) |
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan |
| 25 | | | — | | | 68 | |
| — | |
| 68 |
Stock option and restricted stock compensation expense |
| — | | | — | | | 5,007 | |
| — | |
| 5,007 |
Directors’ deferred share unit compensation |
| — | | | — | | | 100 | |
| — | |
| 100 |
Balance at March 31, 2019 |
| 149,425 | | $ | 1,494 | | $ | 1,197,988 | | $ | (1,227,086) | | $ | (27,604) |
Net loss |
| — | |
| — | |
| — | |
| (43,446) | |
| (43,446) |
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan |
| 354 | | | 3 | | | 667 | |
| — | |
| 670 |
Restricted stock award | | 106 | | | 1 | | | (1) | | | — | | | — |
Stock option and restricted stock compensation expense |
| — | | | — | | | 2,106 | |
| — | |
| 2,106 |
Directors’ deferred share unit compensation |
| — | | | — | | | 100 | |
| — | |
| 100 |
Balance at June 30, 2019 |
| 149,885 | | $ | 1,498 | | $ | 1,200,860 | | $ | (1,270,532) | | $ | (68,174) |
| | | | | | | | | | | | | | |
| | | | | | | Additional | | | | | Total | ||
| | Common Stock | | Paid-In | | Accumulated | | Shareholders’ | ||||||
| | Shares | | Amount | | Capital | | Deficit | | (Deficit) Equity | ||||
Balance at December 31, 2018 |
| 149,400 | | $ | 1,494 | | $ | 1,192,813 | | $ | (1,183,335) | | $ | 10,972 |
Net loss |
| — | |
| — | |
| — | |
| (43,751) | |
| (43,751) |
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan |
| 25 | | | — | | | 68 | |
| — | |
| 68 |
Stock option and restricted stock compensation expense |
| — | | | — | | | 5,007 | |
| — | |
| 5,007 |
Directors’ deferred share unit compensation |
| — | | | — | | | 100 | |
| — | |
| 100 |
Balance at March 31, 2019 |
| 149,425 | | $ | 1,494 | | $ | 1,197,988 | | $ | (1,227,086) | | $ | (27,604) |
Net loss |
| — | |
| — | |
| — | |
| (43,446) | |
| (43,446) |
Issuance of common stock pursuant to stock plans |
| 354 | | | 3 | | | 667 | |
| — | |
| 670 |
Restricted stock award | | 106 | | | 1 | | | (1) | | | — | | | — |
Stock option and restricted stock compensation expense |
| — | | | — | | | 2,106 | |
| — | |
| 2,106 |
Directors’ deferred share unit compensation |
| — | | | — | | | 100 | |
| — | |
| 100 |
Balance at June 30, 2019 |
| 149,885 | | $ | 1,498 | | $ | 1,200,860 | | $ | (1,270,532) | | $ | (68,174) |
Net loss |
| — | |
| — | |
| — | |
| (21,750) | |
| (21,750) |
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan |
| 30 | | | — | | | 73 | |
| — | |
| 73 |
Restricted stock award forfeitures | | (227) | | | — | | | — | | | — | | | — |
Stock option and restricted stock compensation expense |
| — | | | — | | | 3,580 | |
| — | |
| 3,580 |
Directors’ deferred share unit compensation |
| — | | | — | | | 46 | |
| — | |
| 46 |
Balance at September 30, 2019 |
| 149,688 | | $ | 1,498 | | $ | 1,204,559 | | $ | (1,292,282) | | $ | (86,225) |
Net income |
| — | | | — | | | — | | | 4,814 | |
| 4,814 |
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan |
| 741 | | | 7 | | | 2,054 | | | — | |
| 2,061 |
Restricted stock award, net of forfeitures | | (293) | | | (4) | | | 4 | | | — | | | — |
Stock option and restricted stock compensation expense |
| — | | | — | | | 3,138 | | | — | |
| 3,138 |
Directors’ deferred share unit compensation |
| — | | | — | | | 91 | | | — | |
| 91 |
Balance at December 31, 2019 |
| 150,136 | | $ | 1,501 | | $ | 1,209,846 | | $ | (1,287,468) | | $ | (76,121) |
Net loss |
| — | | | — | | | — | | | (29,088) | | | (29,088) |
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan |
| 86 | | | 1 | | | 239 | | | — | | | 240 |
Issuance of common stock, net of issuance costs | | 24,524 | | | 245 | | | 97,499 | | | — | | | 97,744 |
Restricted stock units vested | | 2 | | | — | | | — | | | — | | | — |
Restricted stock award forfeitures | | (487) | | | (4) | | | 4 | | | — | | | — |
Stock option and restricted stock compensation expense |
| — | | | — | | | 3,122 | | | — | | | 3,122 |
Balance at March 31, 2020 |
| 174,261 | | $ | 1,743 | | $ | 1,310,710 | | $ | (1,316,556) | | $ | (4,103) |
Net loss |
| — | | | — | | | — | | | (24,298) | | | (24,298) |
Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan |
| 122 | | | 1 | | | 424 | | | — | | | 425 |
Adjustment of issuance costs | | — | | | — | | | (1) | | | — | | | (1) |
Restricted stock units vested | | 157 | | | 1 | | | (1) | | | — | | | — |
Stock option and restricted stock compensation expense |
| — | | | — | | | 3,409 | | | — | | | 3,409 |
Directors’ deferred share unit compensation |
| — | | | — | | | 45 | | | — | | | 45 |
Balance at June 30, 2020 |
| 174,540 | | $ | 1,745 | | $ | 1,314,586 | | $ | (1,340,854) | | $ | (24,523) |
The accompanying notes are an integral part of the consolidated financial statements.
4
IMMUNOGEN, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
In thousands
| | | | | | | | ||||||
| | | | | | | | ||||||
| | | | | | | | | | | | | |
| | Six Months Ended | | Six Months Ended | | ||||||||
| | June 30, | | June 30, | | ||||||||
|
| 2019 |
| 2018 |
| 2020 |
| 2019 |
| ||||
| | | | | | | | | | | | | |
Cash flows from operating activities: | | | | | | | | | | | | | |
Net loss | | $ | (87,197) | | $ | (80,237) | | $ | (53,386) | | $ | (87,197) | |
Adjustments to reconcile net loss to net cash used for operating activities: | | | | | | | | | | | | | |
Non-cash royalty revenue related to sale of future royalties | | | (18,900) | | | (14,432) | | | (27,072) | | | (18,900) | |
Non-cash interest expense on liability related to sale of future royalties and convertible senior notes | | | 7,250 | | | 5,657 | | | 11,783 | | | 7,250 | |
Depreciation and amortization | |
| 2,438 | |
| 5,056 | |
| 1,045 | |
| 2,438 | |
Loss (gain) on sale/disposal of fixed assets and impairment charges | |
| 2,404 | |
| (30) | |||||||
(Gain) loss on sale/disposal of fixed assets and impairment charges | |
| (691) | |
| 2,404 | | ||||||
Operating lease right-of-use asset impairment | |
| 559 | |
| — | |
| — | |
| 559 | |
Stock and deferred share unit compensation | |
| 7,313 | |
| 7,872 | |
| 6,576 | |
| 7,313 | |
Deferred rent | |
| — | |
| (59) | |||||||
Change in operating assets and liabilities: | | | | | | | | | | | | | |
Accounts receivable | |
| 1,701 | |
| 2,630 | |
| 7,187 | |
| 1,701 | |
Unbilled revenue/reimbursement | |
| (1,857) | |
| 2,058 | |
| 996 | |
| (1,857) | |
Inventory | |
| — | |
| (852) | |||||||
Contract asset | | | 500 | |
| — | | | 2,589 | |
| 500 | |
Prepaid and other current assets | |
| (2,187) | |
| (6,926) | |
| (1,001) | |
| (2,187) | |
Operating lease right-of-use assets | | | 664 | | | — | | | 723 | | | 664 | |
Other assets | |
| 1,859 | |
| (640) | |
| (3,807) | |
| 1,859 | |
Accounts payable | |
| (3,199) | |
| 3,871 | |
| 2,161 | |
| (3,199) | |
Accrued compensation | |
| 9,238 | |
| (2,949) | |
| (4,191) | |
| 9,238 | |
Other accrued liabilities | |
| (5,346) | |
| 1,896 | |
| 2,832 | |
| (5,346) | |
Deferred revenue | |
| 65,129 | |
| (8,196) | |
| (817) | |
| 65,129 | |
Operating lease liability | | | (1,179) | | | — | | | (1,435) | | | (1,179) | |
Net cash used for operating activities | |
| (20,810) | |
| (85,281) | |
| (56,508) | |
| (20,810) | |
Cash flows from investing activities: | | | | | | | | | | | | | |
Purchases of property and equipment | |
| (2,355) | | | (2,127) | |
| (44) | | | (2,355) | |
Net cash used for investing activities | |
| (2,355) | |
| (2,127) | |||||||
Proceeds from sale of equipment | | | 1,426 | | | — | | ||||||
Net cash provided by (used for) investing activities | |
| 1,382 | |
| (2,355) | | ||||||
Cash flows from financing activities: | | | | | | | | | | | | | |
Proceeds from issuance of common stock under stock plans | |
| 738 | |
| 2,819 | |
| 664 | |
| 738 | |
Proceeds from common stock issuance, net of $367 of transaction costs | |
| — | |
| 162,540 | |||||||
Proceeds from common stock issuance, net of $230 of transaction costs | | | 97,743 | | | — | | ||||||
Net cash provided by financing activities | |
| 738 | |
| 165,359 | |
| 98,407 | |
| 738 | |
Net change in cash and cash equivalents | |
| (22,427) | |
| 77,951 | |
| 43,281 | |
| (22,427) | |
Cash and cash equivalents, beginning of period | |
| 262,252 | | | 267,107 | |
| 176,225 | | | 262,252 | |
Cash and cash equivalents, end of period | | $ | 239,825 | | $ | 345,058 | | $ | 219,506 | | $ | 239,825 | |
The accompanying notes are an integral part of the consolidated financial statements.
5
IMMUNOGEN, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 20192020
A. | Nature of Business and Plan of Operations |
ImmunoGen, Inc. (the Company) was incorporated in Massachusetts in 1981 and is focused on the development of antibody-drug conjugates, or ADC, therapeutics.ADCs. The Company has generally incurred operating losses and negative cash flows from operations since inception, incurred a net loss of $87.2$53.4 million during the six months ended June 30, 2019,2020, and has an accumulated deficit of approximately $1.3 billion as of June 30, 2019.2020. The Company has primarily funded these losses through payments received from its collaborations and equity, and convertible debt, and other financings. To date, the Company has no0 product revenue and management expects operating losses to continue for the foreseeable future.
At June 30, 2019,2020, the Company had $239.8$219.5 million of cash and cash equivalents on hand. On June 26, 2019, the Board of Directors approved a plan to restructure the business to focus resources on continued development of mirvetuximab soravtansine and a select portfolio of three earlier-stage product candidates, resulting in a reduction of workforce by approximately 220 positions. The Company anticipates that its current capital resources and expense reductions resulting from these operational changes will enable it to meet its operational expenses and capital expenditures for more than twelve months after the date these financial statements are issued. The Company may raise additional funds through equity, debt, or debtother financings, or generate revenues from collaborators through a combination of upfront license payments, milestone payments, royalty payments, and research funding. There can be no assurance that the Company will be able to obtain additional debt, equity, or equityother financing or generate revenues from collaborators on terms acceptable to the Company or at all. The failure of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company’s business, results of operations, and financial condition and require the Company to defer or limit some or all of its research, development, and/or clinical projects.
The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, the development by its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, manufacturing and marketing limitations, complexities associated with managing collaboration arrangements, third-party reimbursements, and compliance with governmental regulations.
B. | Summary of Significant Accounting Policies |
Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, ImmunoGen Securities Corp., ImmunoGen Europe Limited, ImmunoGen (Bermuda) Ltd., ImmunoGen BioPharma (Ireland) Limited, and Hurricane, LLC. All intercompany transactions and balances have been eliminated. The consolidated financial statements include all of the adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair presentation of the Company’s financial position in accordance with accounting principles generally accepted in the U.S. for interim financial information. The December 31, 2018, condensed2019 consolidated balance sheet data presented for comparative purposes werewas derived from the Company’s audited financial statements, butand certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. The preparation of interim financial statements requires the use of management’s estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim financial statements and the reported amounts of revenues and expenditures during the reported periods. The results of the interim periods are not necessarily indicative of the results for the entire year. Accordingly, the interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2019, filed with the SEC on March 11, 2020.
Subsequent Events
The Company has evaluated all events or transactions that occurred after June 30, 2019,2020, up through the date the Company issued these financial statements. The Company did not have any material recognizablerecognized or unrecognizableunrecognized subsequent events during this period.
6
Revenue Recognition
The Company enters into licensing and development agreements with collaborators for the development of
ADCs. The terms of these agreements contain multiple deliverables/performance obligationspromised goods and services which may include (i) licenses, or options to obtain licenses, to the Company’s ADC technology, (ii) rights to future technological improvements, and (iii) research
6
miscellaneous other activities to be performed on behalf of the collaborative partner, (iv) delivery of cytotoxic agents, and (v) prior to the decommission of the Company’s Norwood facility in 2018, the manufacture of preclinical or clinical materials for the collaborative partner. Payments to the Company under these agreements may include upfront fees, option fees, exercise fees, payments for researchmiscellaneous other activities, payments for the manufacture of preclinical or clinical materials, payments based upon the achievement of certain milestones, and royalties on product sales. The Company follows the provisions of Accounting Standards Codification Topic 606 - Revenue from Contracts with Customers (ASC 606) in accounting for these agreements.
Revenue is recognized when a 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. In determining the appropriate amount of revenue to be recognized as it fulfills its obligations under the agreements, the Company performs the following five steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when or as the Company satisfies each performance obligation.
The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration to which it is entitled in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and determines those that are performance obligations, and assessesbased on whether each promised good or service is distinct.distinct from other promised goods and services. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when or as the performance obligation is satisfied.
As part of the accounting for the arrangement,these arrangements, the Company must develop assumptions that require judgment to determine the selling price for each performance obligation that was identified in the contract, which is discussed in further detail below.
At June 30, 2019,2020, the Company had the following material types of material agreements with the parties identified below:
● | Development and commercialization licenses, which provide the |
Bayer (one(1 exclusive single-target license)
Biotest (one(1 exclusive single-target license)license – pending termination)
CytomX (one(2 exclusive single-target license)licenses)
Debiopharm (one(1 exclusive single-compound license)
Fusion Pharmaceuticals (one(1 exclusive single-compoundsingle-target license)
Novartis (five(5 exclusive single-target licenses)
Oxford BioTherapeutics/Menarini (one(1 exclusive single target license sublicensed from Amgen)
Roche, through its Genentech unit (five(5 exclusive single-target licenses)
Sanofi (five(5 fully-paid, exclusive single-target licenses)
Takeda, through its wholly owned subsidiary, Millennium Pharmaceuticals, Inc. (one(1 exclusive single-target license)license – pending termination)
7
● | Collaboration and option agreement for a defined period of time to secure |
Jazz Pharmaceuticals
● | Collaboration and license agreement to co-develop and co-commercialize a specified anticancer compound on established terms: |
MacroGenics
7
There are no performance, cancellation, termination, or refund provisions in any of the arrangements that contain material financial consequences to the Company.
Development and Commercialization Licenses
The obligations under a development and commercialization license agreement generally include the license to the Company’s ADC technology with respect to a specified antigen target, and may also include obligations related to rights to future technological improvements researchand miscellaneous other activities to be performed on behalf of the collaborative partner and, previously, the manufacture of preclinical or clinical materials for the collaborative partner.
Generally, development and commercialization licenses contain non-refundable terms for payments and, depending on the terms of the agreement, provide that the Company will (i) prior to the Company’s restructuring of the business in June 2019, at the collaborator’s request, provide research services at negotiated prices which are generally consistent with what other third parties would charge, (ii) prior to the decommissioning of the Company’s Norwood facility in 2018, at the collaborator’s request, manufacture and provide preclinical and clinical materials or deliver cytotoxic agents at negotiated prices which are generally consistent with what other third parties would charge, (iii) earn payments upon the achievement of certain milestones and (iv) earn royalty payments, generally until the later of the last applicable patent expiration or 10 to 12a fixed period of years after product launch. Royalty rates may vary over the royalty term depending on the Company’s intellectual property rights and/or the presence of comparable competing products. In the case of Sanofi, its licenses are fully-paid and no further milestones or royalties will be received. In the case of Debiopharm, no royalties will be received. The Company may also provide technical assistance and share any technology improvements with its collaborators during the term of the collaboration agreements. The Company does not directly control when or whether any collaborator will request research, achieve milestones, or become liable for royalty payments.
In determining the performance obligations, management evaluates whether the license is distinct, and has significant standalone functionality, from the undelivered elements to the collaborative partner based on the consideration of the relevant facts and circumstances for each arrangement. Factors considered in this determination include the research capabilities of the partner and the availability of ADC technology research expertise in the general marketplace and whether technological improvements are required for the continued functionality of the license. If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, up-frontupfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license.
The Company estimates the selling prices of the license and all other performance obligations based on market conditions, similar arrangements entered into by third parties, and entity-specific factors such as the terms of the Company’s previous collaborative agreements, recent preclinical and clinical testing results of therapeutic products that use the Company’s ADC technology, the Company’s pricing practices and pricing objectives, the likelihood that technological improvements will be made, and, if made, will be used by the Company’s collaborators, and the nature of the researchother services to be performed on behalf of its collaborators and market rates for similar services.
The Company recognizes revenue related to researchother services as the servicesthey are performed. The Company has also produced research material for potential collaborators under material transfer agreements. The Company is compensated at negotiated rates that are consistent with what other third parties would charge. The Company records amounts received for research materials produced or services performed as a component of research and development support revenue.
8
Prior to 2019, the Company also provided cytotoxic agents to its collaborators and produced preclinical and clinical materials (drug substance) at negotiated prices generally consistent with what other third parties would charge. The Company recognized revenue on cytotoxic agents and on preclinical and clinical materials when the materials passed all quality testing required for collaborator acceptance and control had transferred to the collaborator. The majority of the Company’s costs to produce these preclinical and clinical materials were fixed and then allocated to each batch based on the number of batches produced during the period.
The Company recognizes revenue related to the rights to future technological improvements over the estimated term of the applicable license.
The Company’s development and commercialization license agreements have milestone payments which for reporting purposes are aggregated into three categories: (i) development milestones, (ii) regulatory milestones, and (iii) sales milestones. Development milestones are typically payable when a product candidate initiates or advances into different clinical trial phases. Regulatory milestones are typically payable upon submission for marketing approval with the U.S. Food and Drug Administration or FDA,(FDA) or other countries’ regulatory authorities or on receipt of actual marketing approvals for the compound or for additional indications. Sales milestones are typically payable when annual sales reach certain levels.
At the inception of each arrangement that includes developmentaldevelopment and regulatory milestone payments, the Company evaluates whether the achievement of each milestone specifically relates to the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service within a performance obligation. If the achievement of a milestone is considered a direct result of the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service and the receipt of the payment is based upon the achievement of the milestone, the associated milestone value is allocated to that distinct good or service. If the milestone payment is not specifically related to the Company’s effort to satisfy a performance obligation or transfer a distinct good or service, the amount is allocated to all performance
8
obligations using the relative standalone selling price method. In addition, the Company evaluates the milestone to determine whether the milestone is considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price to be allocated; otherwise, such amounts are considered constrained and excluded from the transaction price. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development or regulatory milestones and any related constraint and, if necessary, adjusts its estimate of the transaction price. Any such adjustments to the transaction price are allocated to the performance obligations on the same basis as at contract inception. Amounts allocated to a satisfied performance obligation shall be recognized as revenue, or as a reduction of revenue, in the period in which the transaction price changes.
For development and commercialization license agreements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied) in accordance with the royalty recognition constraint. Under the Company’s development and commercialization license agreements, except for the Sanofi and Debiopharm licenses, the Company receives royalty payments based upon its licensees’ net sales of covered products. Generally, under the development and commercialization agreements, the Company receives royalty reports and payments from its licensees approximately one quarter in arrears. The Company estimates the amount of royalty revenue to be recognized based on historical and forecasted sales and/or sales information from its licensees if available.
Collaboration and Option Agreements/Right-to-Test Agreements
The Company’s right-to-test agreements provide collaborators the right to test the Company’s ADC technology for a defined period of time through a research, or right-to-test, license. Under both right-to-test agreements and collaboration and option agreements, collaborators may (a) take options, for a defined period of time, to specified targets and (b) upon exercise of those options, secure or “take” licenses to develop and commercialize products for the specified targets on established terms. Under these agreements, fees may be due to the Company (i) at the inception of the arrangement (referred to as “upfront” fees or payments), (ii) upon the opt-in to acquire a development and commercialization license(s) (referred to as exercise fees or payments earned, if any, when the development and commercialization license is “taken”), (iii) at the collaborator’s request, after providing researchother services at negotiated
9
prices, which are generally consistent with what other third parties would charge, or (iv) upon some combination of all of these fees.
The accounting for collaboration and option agreements and right-to-test agreements is dependent on the nature of the options granted to the collaborative partner. Options are considered distinct performance obligations if they provide a collaborator with a material right. Factors that are considered in evaluating whether options convey a material right include the overall objective of the arrangement, the benefit the collaborator might obtain from the agreement without exercising the options, the cost to exercise the options relative to the fair value of the licenses, and the additional financial commitments or economic penalties imposed on the collaborator as a result of exercising the options. As of June 30, 2019,2020, all right-to-test agreements have expired.
If the Company concludes that an option provides the customer a material right, and therefore is a separate performance obligation, the Company then determines the estimated selling prices of the option and all other units of accounting using the following inputs: a)(a) estimated fair value of each program, b)(b) the amount the partner would pay to exercise the option to obtain the license, and c)(c) probability of exercise.
The Company does not control when or if any collaborator will exercise its options for development and commercialization licenses. As a result, the Company cannot predict when or if it will recognize revenues in connection with any of the foregoing.
Upfront payments on development and commercialization licenses may be recognized upon delivery of the license if facts and circumstances dictate that the license has stand-alone functionality and is distinct from the undelivered elements.
In determining whether a collaboration and option agreement is within the scope of ASC 808, Collaborative Arrangements, management evaluates the level of involvement of both companies in the development and
9
commercialization of the products to determine if both parties are active participants and if both parties are exposed to risks and rewards dependent on the commercial success of the licensed products. If the agreement is determined to be within the scope of ASC 808, the Company will segregatesegregates the research and development activities and the related cost sharing arrangement. Payments made by the Company for such activities will be recorded as research and development expense and reimbursements received from its partner will be recognized as an offset to research and development expense.
Transaction Price Allocated to Future Performance Obligations
Remaining performance obligations represent the transaction price of contracts for which work has not been performed (or has been partially performed) and includes unexercised contract options that are considered material rights. As of June 30, 2019,2020, the aggregate amount of the transaction price allocated to remaining performance obligations comprising deferred revenue was $145.9$126.6 million. The Company expects to recognize revenue on approximately 24%90% and 76%10% of the remaining performance obligations over the next 13 to 60 months and 61 to 120 months, respectively; however, it does not control when or if any collaborator will exercise its options for, or terminate existing development and commercialization licenses.
Contract Balances from Contracts with Customers
The following table presents changes in the Company’s contract assets and contract liabilities during the six months ended June 30, 20192020 and 20182019 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | |||||
| | Balance at | | | | | | | | Balance at | | Balance at | | | | | | | | | | | Balance at | ||||
Six months ended June 30, 2019 | | December 31, 2018 |
| Additions | | Deductions | | End of Period | |||||||||||||||||||
Six months ended June 30, 2020 | | December 31, 2019 |
| Additions | | Deductions | | Impact of Netting | | June 30, 2020 | |||||||||||||||||
Contract asset | | $ | 500 | | $ | — | | $ | (500) | | $ | — | | $ | 3,631 | | $ | — | | $ | (3,000) | | $ | 411 | | $ | 1,042 |
Contract liabilities | | $ | 80,802 | | $ | 65,287 | | $ | (158) | | $ | 145,931 | | $ | 127,432 | | $ | — | | $ | (1,228) | | $ | 411 | | $ | 126,615 |
| | | | | | | | | | | | | | | | | | | | | | | | ||||
| | Balance at | | | | | | | | | | | | | | | | | | | | | |||||
| | January 1, 2018 | | | | | | | | | | Balance at | | Balance at | | | | | | | Balance at | ||||||
Six months ended June 30, 2018 | | (ASC 606 adoption) | | Additions | | Deductions | | Impact of Netting | | End of Period | |||||||||||||||||
Six months ended June 30, 2019 | | December 31, 2018 | | Additions | | Deductions | | June 30, 2019 | |||||||||||||||||||
Contract asset | | $ | — | | $ | — | | $ | (5,000) | | $ | 5,000 | | $ | — | | $ | 500 | | $ | — | | $ | (500) | | $ | — |
Contract liabilities | | $ | 89,967 | | $ | — | | $ | (13,196) | | $ | 5,000 | | $ | 81,771 | | $ | 80,802 | | $ | 65,287 | | $ | (158) | | $ | 145,931 |
10
The Company recognized the following revenues as a result of changes in contract asset and contract liability balances in the respective periods (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | Three Months Ended | | Six Months Ended | ||||||||||||||||
| | June 30, | | June 30, | | June 30, | | June 30, | ||||||||||||||||
| | 2019 | | 2018 | | 2019 | | 2018 | | 2020 | | 2019 | | 2020 | | 2019 | ||||||||
Revenue recognized in the period from: | | | | | | | | | | | | | | | | | | | | | | | | |
Amounts included in contract liabilities at the beginning of the period | | $ | 79 | | $ | 1,321 | | $ | 158 | | $ | 13,196 | | $ | 945 | | $ | 79 | | $ | 1,228 | | $ | 158 |
Performance obligations satisfied in previous periods | | $ | 5,000 | | $ | — | | $ | 5,000 | | $ | — | | $ | — | | $ | 5,000 | | $ | — | | $ | 5,000 |
During the six months ended June 30, 2020, the Company recorded $200,000 as license and milestone fee revenue for delivery of certain materials to CytomX that had been previously deferred, and $1.0 million of amortization related to numerous collaborators’ rights to technological improvements, which includes $870,000 related to a notice of termination of the license agreement with Takeda. Additionally, a contract asset of $2.7 million, net of a $0.3 million related contract liability, was recorded for a probable milestone in 2019 pursuant to a license agreement with CytomX, which was subsequently achieved and paid during the six months ended June 30, 2020.
In accordance with ASC 606, aA contract asset of $500,000 was recorded for a probable milestone in 2018 pursuant to a license agreement with Fusion Pharmaceuticals, which was subsequently paid during the six months ended June 30, 2019. During the three and six months ended June 30, 2019, the Company received a $5$5.0 million regulatory milestone payment earned under its license agreement with Genentech, a member of the Roche Group. The full amount of the milestone was recognized as revenue in the period as the amount allocated to future rights to technological improvements was not material. Also during the six months ended June 30, 2019, $65.2 million was recorded as deferred revenue as a result of a sale of the Company’s residual rights to receive royalty payments on commercial sales of Kadcyla®Kadcyla® (ado-trastuzumab emtansine) as discussed in
10
Note E, and $158,000 of amortization of deferred revenue was recorded related to numerous collaborators’ rights to technological improvements.
During the six months ended June 30, 2018, a contract asset of $5 million was recorded for a probable milestone under the Company’s license agreement with Takeda, which was netted against an approximate $1 million contract liability specifically related to the agreement. It was subsequently earned and paid during the six months ended June 30, 2018. Also during the prior year period, as a result of Takeda not executing a second license it had available, or extending or expanding its right-to-test agreement, the Company recognized $10.9 million of revenue previously deferred, with a net reduction in deferred revenue of $5.9 million due to contract asset and contract liability netting. In addition, $750,000 of the deferred revenue balance at December 31, 2017 was recognized as revenue during the six months ended June 30, 2018 upon completion of certain performance obligations under license agreements with Debiopharm and Fusion, $1.2 million of amortization of deferred revenue was recorded related to numerous collaborators’ rights to technological improvements, and $335,000 of revenue was recognized upon shipment of clinical materials to a partner.
The timing of revenue recognition, billings, and cash collections results in billed receivables, contract assets, and contract liabilities on the consolidated balance sheets. When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met.
Financial Instruments and Concentration of Credit Risk
Cash and cash equivalents are primarily maintained with three3 financial institutions in the U.S. Deposits with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk. The Company’s cash equivalents consist of money market funds with underlying investments primarily being U.S. Government issuedGovernment-issued securities and high quality, short term commercial paper. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, and marketable securities. The Company held no0 marketable securities as of June 30, 20192020 and December 31, 2018.2019. The Company’s investment policy, approved by the Board of Directors, limits the amount it may invest in any one type of investment, thereby reducing credit risk concentrations.
Cash and Cash Equivalents
All highly liquid financial instruments with maturities of three months or less when purchased are considered cash equivalents. As of June 30, 20192020 and December 31, 2018,2019, the Company held $239.8$219.5 million and $262.3$176.2 million, respectively, in cash and money market funds, consisting principally of U.S. Government-issued securities and high quality, short-term commercial paper, which were classified as cash and cash equivalents.
11
Non-cash Investing and Financing Activities
The Company had $30,000 and $715,000$645,000 of accrued capital expenditures as of June 30, 2019 and December 31, 2018, respectively,2020 which have been treated as a non-cash investing activity and, accordingly, are not reflected in the consolidated statement of cash flows. The Company had 0 accrued capital expenditures as of December 31, 2019.
Fair Value of Financial Instruments
Fair value is defined under ASC Topic 820, “FairFair Value Measurements and Disclosures”, as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a hierarchy to measure fair value which is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
● | Level 1 - Quoted prices in active markets for identical assets or liabilities. |
● | Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
● | Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
As of June 30, 2019,2020, the Company held certain assets that are required to be measured at fair value on a recurring basis. The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of June 30, 20192020 (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value Measurements at June 30, 2019 Using | | Fair Value Measurements at June 30, 2020 Using | ||||||||||||||||||||
| | | | | Quoted Prices in | | | | | Significant | | | | | Quoted Prices in | | | | | Significant | ||||
| | | | | Active Markets for | | Significant Other | | Unobservable | | | | | Active Markets for | | Significant Other | | Unobservable | ||||||
| | | | | Identical Assets | | Observable Inputs | | Inputs | | | | | Identical Assets | | Observable Inputs | | Inputs | ||||||
|
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||||||
Cash equivalents | | $ | 220,555 | | $ | 220,555 | | $ | — | | $ | — | | $ | 204,807 | | $ | 204,807 | | $ | — | | $ | — |
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As of December 31, 2018,2019, the Company held certain assets that are required to be measured at fair value on a recurring basis. The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of December 31, 20182019 (in thousands):
| | | | | | | | | | | | |
| | Fair Value Measurements at December 31, 2018 Using | ||||||||||
| | | | | Quoted Prices in | | | | | Significant | ||
| | | | | Active Markets for | | Significant Other | | Unobservable | |||
| | | | | Identical Assets | | Observable Inputs | | Inputs | |||
|
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Cash equivalents | | $ | 242,604 | | $ | 242,604 |
| $ | — |
| $ | — |
| | | | | | | | | | | | |
| | Fair Value Measurements at December 31, 2019 Using | ||||||||||
| | | | | Quoted Prices in | | | | | Significant | ||
| | | | | Active Markets for | | Significant Other | | Unobservable | |||
| | | | | Identical Assets | | Observable Inputs | | Inputs | |||
|
| Total |
| (Level 1) |
| (Level 2) |
| (Level 3) | ||||
Cash equivalents | | $ | 163,674 | | $ | 163,674 |
| $ | — |
| $ | — |
The fair value of the Company’s cash equivalents is based on quoted prices from active markets.
The carrying amounts reflected in the consolidated balance sheets for accounts receivable, unbilled revenue, prepaid and other current assets, accounts payable, accrued compensation, and other accrued liabilities approximate fair value due to their short-term nature. The estimated fair value of the convertible 4.5% senior notes (the “Convertible Notes”) approximates theand gross carrying value of $2.1 million as of June 30, 2019. The estimated fair value and gross carrying amount was $2.8is $3.0 million and $2.1 million, respectively, as of June 30, 2020 and had the same values as of December 31, 2018.2019. The fair value of the Convertible Notes is influenced by interest rates, the Company’s stock price and stock price volatility, and is determined by prices observed in trading activity for the Convertible Notes observed in a market which is a Level 2 input for fair value purposes due to the low frequency of trades. ThereNotes. However, because there have been no0 trades involving the Convertible Notes since January 2018, soSeptember 2019, the fair value as of June 30, 2020 and December 31, 2019 uses Level 3 inputs.
Unbilled Revenue/Reimbursement
Unbilled revenue/reimbursement substantially represents research funding earned based on actual resources utilized and external expenses incurred under certain of the Company’s collaboration agreements.
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Clinical Trial Accruals
Clinical trial expenses are a significant component of research and development expenses, and the Company outsources a significant portion of these costs to third parties. Third party clinical trial expenses include investigator fees, site costs (patient costs), clinical research organization costs, and costs for central laboratory testing and data management. The accrual for site and patient costs includes inputs such as estimates of patient enrollment, patient cycles incurred, clinical site activations, and other pass-through costs. These inputs are required to be estimated due to a lag in receiving the actual clinical information from third parties. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected on the consolidated balance sheets as prepaid assetassets or accrued clinical trial cost.costs. These third party agreements are generally cancelable, and related costs are recorded as research and development expenses as incurred. Non-refundable advance clinical payments for goods or services that will be used or rendered for future R&D activities are recorded as a prepaid asset and recognized as expense as the related goods are delivered or the related services are performed. The Company also records accruals for estimated ongoing clinical research and development costs. When evaluating the adequacy of the accrued liabilities, the Company analyzes progress of the studies, including the phase or completion of events, invoices received, and contracted costs. Significant judgments and estimates may be made in determining the accrued balances at the end of any reporting period. Actual results could differ from the estimates made by the Company. The historical clinical accrual estimates made by the Company have not been materially different from the actual costs.
Leases
Effective January 1, 2019, the Company adopted ASU 2016-2, Leases (Topic 842), the details of which are further discussed in Note H. The Company determines if an arrangement is a lease at inception. Operating leases include right-of-use (“ROU”) assets and operating lease liabilities (current and non-current), which are recorded in the Company’s consolidated balance sheets. Single payment capital leases for equipment that are considered finance leases are included in property and equipment in the Company’s consolidated balance sheets. As thesethe single payment obligations have all been made, there is no0 related liability recorded.
ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. The Company uses the implicit rate when readily determinable. As a number of the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate applicable to the Company based on the information
12
available at the commencement date in determining the present value of lease payments. As the Company has no existing or proposed collateralized borrowing arrangements, to determine a reasonable incremental borrowing rate, the Company considers collateral assumptions, the lease term, the Company’s current credit risk profile, and rates for existing borrowing arrangements for comparable peer companies. The operating lease ROU assets are netted against any lease incentive and straight-line lease liabilities that have been recorded. The Company accounts for the lease and fixed non-lease components as a single lease component. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term.
Computation of Net Loss per Common Share
Basic and diluted net loss per share is calculated based upon the weighted average number of common shares outstanding during the period. During periods of income, participating securities are allocated a proportional share of income determined by dividing total weighted average participating securities by the sum of the total weighted average common shares and participating securities (the “two-class method”). Shares of the Company’s restricted stock participate in any dividends that may be declared by the Company and are therefore considered to be participating securities. Participating securities have the effect of diluting both basic and diluted earnings per share during periods of income. During periods of loss, no loss is allocated to participating securities since they have no contractual obligation to share in the losses of the Company. Diluted (loss) income per share is computed after giving consideration to the dilutive effect of stock options, convertible notes, and restricted stock that are outstanding during the period, except where such non-participating securities would be anti-dilutive.
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The Company’s common stock equivalents, as calculated in accordance with the treasury-stock method for the options and unvested restricted stock and the if-converted method for the Convertible Notes, are shown in the following table (in thousands):
| | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | ||||
| | June 30, | | June 30, | | ||||
|
| 2019 |
| 2018 |
| 2019 |
| 2018 |
|
Options outstanding to purchase common stock, shares issuable under the employee stock purchase plan, and unvested restricted stock/units at end of period | | 20,223 | | 17,776 | | 20,223 | | 17,776 | |
Common stock equivalents under treasury stock method for options, shares issuable under the employee stock purchase plan, and unvested restricted stock | | 432 |
| 3,451 | | 1,005 | | 3,484 |
|
Shares issuable upon conversion of convertible notes at end of period | | 501 | | 501 | | 501 | | 501 | |
Common stock equivalents under if-converted method for convertible notes | | 501 | | 501 | | 501 | | 501 | |
| | | | | | | | | |
| | Three Months Ended | | Six Months Ended | | ||||
| | June 30, | | June 30, | | ||||
|
| 2020 |
| 2019 |
| 2020 |
| 2019 |
|
Options outstanding to purchase common stock, shares issuable under the employee stock purchase plan, and unvested restricted stock/units at end of period | | 19,065 | | 20,223 | | 19,065 | | 20,223 | |
Common stock equivalents under treasury stock method for options, shares issuable under the employee stock purchase plan, and unvested restricted stock | | 982 |
| 432 | | 1,204 | | 1,005 |
|
Shares issuable upon conversion of convertible notes at end of period | | 501 | | 501 | | 501 | | 501 | |
Common stock equivalents under if-converted method for convertible notes | | 501 | | 501 | | 501 | | 501 | |
The Company’s common stock equivalents have not been included in the net loss per share calculation because their effect is anti-dilutive due to the Company’s net loss position.
Stock-Based Compensation
As of June 30, 2019,2020, the Company iswas authorized to grant future awards under an3 employee share-based compensation plan,plans, which isare the ImmunoGen, Inc. 2018 Employee, Director and Consultant Equity Incentive Plan, oras amended (the 2018 Plan), the Employee Stock Purchase Plan (ESPP), and the ImmunoGen Inducement Equity Incentive Plan, as amended (the Inducement Plan). At the annual meeting of shareholders on June 20, 2018, the 2018 Plan. The 2018 Plan was approved and provides for the issuance of stock grants,Stock Grants, the grant of optionsOptions, and the grant of stock-basedStock-Based Awards for up to 7,500,000 shares of the Company’s common stock, as well as up to 19,500,000 shares of common stock which represent awards granted under the two previous stock option plans, the ImmunoGen, Inc. 2016 and 2006 or 2016 Employee, Director and Consultant Equity Incentive Plans, that forfeit, expire, or cancel without delivery of shares of common stock or which resultresulted in the forfeiture of shares of common stock back to the Company on or subsequent to June 20,19, 2018. Option awardsThe Inducement Plan was approved the by Board of Directors in December 2019, and pursuant to subsequent amendments, provides for the issuance of non-qualified option grants for up to 1,500,000 shares of the Company’s common stock. Options awarded under the 2 plans are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Options vest at various periods of up to four years and may be exercised within ten years of the date of grant.
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The stock-based awards are accounted for under ASC Topic 718, “Compensation-Stock Compensation.”Compensation-Stock Compensation. Pursuant to Topic 718, the estimated grant date fair value of awards is charged to the statement of operations and comprehensive loss over the requisite service period, which is the vesting period. Such amounts have been reduced by an estimate of forfeitures of all unvested awards. The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the weighted average assumptions noted in the following table. As the Company has not paid dividends since inception, nor does it expect to pay any dividends for the foreseeable future, the expected dividend yield assumption is zero. Expected volatility is based exclusively on historical volatility of the Company’s stock. The expected term of stock options granted is based exclusively on historical data and represents the period of time that stock options granted are expected to be outstanding. The expected term is calculated for and applied to one group of stock options as the Company does not expect substantially different exercise or post-vesting termination behavior among its option recipients. The risk-free rate of the stock options is based on the U.S. Treasury rate in effect at the time of grant for the expected term of the stock options.
| | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||
|
| 2019 | | 2018 | | 2019 | | 2018 |
Dividend | | None | | None | | None | | None |
Volatility | | 80.3% | | 71.6% | | 73.8% | | 70.9% |
Risk-free interest rate | | 2.04% | | 2.84% | | 2.46% | | 2.71% |
Expected life (years) | | 6.0 | | 6.0 | | 6.0 | | 6.0 |
| | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | ||||
|
| 2020 | | 2019 | | 2020 | | 2019 |
Dividend | | NaN | | NaN | | NaN | | NaN |
Volatility | | 88.0% | | 80.3% | | 84.7% | | 73.8% |
Risk-free interest rate | | .41% | | 2.04% | | 1.30% | | 2.46% |
Expected life (years) | | 6.0 | | 6.0 | | 6.0 | | 6.0 |
Using the Black-Scholes option-pricing model, the weighted average grant date fair values of options granted during the three months ended June 30, 2020 and 2019 were $3.39 and 2018 were $1.63 and $6.82 per share, respectively, and $3.39$3.26 and $6.80$3.39 for options granted during the six months ended June 30, 2020 and 2019, respectively.
A summary of option activity under the Company’s equity plans as of June 30, 2020, and changes during the six-month period then ended is presented below (in thousands, except weighted-average data):
| | | | | | |
|
| |
| Weighted- |
| |
| | Number | | Average | | |
| | of Stock | | Exercise | | |
| | Options | | Price | | |
Outstanding at December 31, 2019 | | 13,518 | | $ | 7.53 | |
Granted | | 6,686 | | | 4.57 | |
Exercised | | (130) | | | 2.78 | |
Forfeited/Canceled | | (1,306) | | | 9.87 | |
Outstanding at June 30, 2020 | | 18,768 | | $ | 6.35 | |
In September 2018, respectively.the Company granted 295,200 performance stock options to certain employees that will vest in 2 equal installments upon the achievement of specified performance goals. At June 30, 2020, 139,100 of these options are still outstanding. In the six months ended June 30, 2020, the Company issued 2.5 million additional performance stock options that will vest in 4 installments upon the achievement of specified performance goals. The Company determined it is not currently probable that these performance goals will be achieved and, therefore, 0 expense has been recorded to date. The fair value of the performance-based options that could be expensed in future periods, net of estimated forfeitures, is $8.9 million.
A summary of restricted stock and restricted stock unit activity, inclusive of performance-based restricted stock awards, under the Company’s equity plans as of June 30, 2020, and changes during the six-month period then ended is presented below (in thousands):
| | | | | |
| | Number of | | Weighted- | |
| | Restricted | | Average Grant | |
| | Stock Shares | | Date Fair Value | |
Unvested at December 31, 2019 |
| 1,297 | | $ | 2.97 |
Vested |
| (513) | | | 2.62 |
Forfeited | | (487) | | | 3.62 |
Unvested at June 30, 2020 | | 297 | | | 2.55 |
In 2016, 2017, and 2019, the Company granted shares of performance-based restricted common stock to certain employees of the Company. All but 57,400 of these granted shares have since been forfeited. The restrictions on these
14
A summary of option activity under the Company’s equity plans as of June 30, 2019, and changes during the six month period then ended is presented below (in thousands, except weighted-average data):
| | | | | |
|
| |
| Weighted- | |
| | Number | | Average | |
| | of Stock | | Exercise | |
| | Options | | Price | |
Outstanding at December 31, 2018 | | 15,564 | | $ | 10.20 |
Granted | | 5,036 | | | 5.13 |
Exercised | | (56) | | | 2.58 |
Forfeited/Canceled | | (2,230) | | | 11.85 |
Outstanding at June 30, 2019 | | 18,314 | | $ | 8.63 |
Includedshares will lapse in the outstanding options in the table above are approximately 3.7 million stock options that are expected to forfeit in the second half of 2019 in connection with the workforce reduction related to the restructuring event in the current period, the details of which are discussed further in Note G. Accordingly, the Company recorded an approximate $2.8 million credit to stock compensation expense in the current period as a result of the change in the forfeiture estimate.
In 2018, the Company granted 295,200 performance stock options to certain employees that will vest in two3 equal installments upon the achievement of specified performance goals within the next five years.goals. The Company determined it is not currently probable that these performance goals will be achieved and, therefore, no expense has been recorded to date. The fair value of the performance-based options that could be expensed in future periods, net of estimated forfeitures (inclusive of the impact of the recent restructuring event), is $762,000.
A summary of restricted stock and restricted stock unit activity under the Company’s equity plans as of June 30, 2019 and changes during the six-month period ended June 30, 2019 is presented below (in thousands):
| | | | | |
| | Number of | | Weighted- | |
| | Restricted | | Average Grant | |
| | Stock Shares | | Date Fair Value | |
Unvested at December 31, 2018 |
| 1,816 | | $ | 2.87 |
Awarded | | 631 | | | 2.55 |
Vested |
| (504) | | | 2.64 |
Forfeited | | (34) | | | 2.64 |
Unvested at June 30, 2019 |
| 1,909 | | $ | 2.83 |
In August 2016, February 2017, June 2017, and April 2019, the Company granted 117,800, 529,830, 239,000 and 106,000 shares of performance-based restricted common stock with grant date fair values of $3.15, $2.47, $4.71 and $2.82, respectively, to certain employees of the Company, which are reflected in the table above. Of these awarded shares, 71,380 have subsequently been forfeited. These restrictions will lapse in three equal installments upon the achievement of specified performance goals by August 12, 2021. The Company determined it is not currently probable that these performance goals will be achieved, and, therefore, no0 expense has been recorded to date. The fair value of the performance-based shares that could be expensed in future periods, net of estimated forfeitures, (inclusive of the impact of the recent restructuring event), is $1.6 million.$142,000.
During the six months ended June 30, 2019,2020, holders of options issued under the Company’s equity plans exercised their rights to acquire an aggregate of approximately 56,000130,000 shares of common stock at prices ranging from $1.84$2.47 to $3.05 per share. The total proceeds to the Company from these option exercises were $144,000.$362,000.
In June 2018, the Company's Board of Directors, with shareholder approval, adopted the Employee Stock Purchase Plan, or ESPP. An aggregate of 2,000,0001,000,000 shares of common stock have been reserved for issuance under the ESPP. On June 30, 2020 and June 30, 2019, approximately78,000, and 323,000 shares, respectively, were issued to participating employees at a fair value of approximately$1.86 and $1.63 per share.share, respectively. The fair value of each ESPP award is estimated on the first day of the offering period using the Black-Scholes option-pricing model. The expected volatilityassumptions used in the fair value calculation was 67.3%,calculations for each offering period are noted in the expected life was .5 years, the expected dividend yield was zero, and the risk-free rate was 2.51%.table below. The Company recognizes share-based compensation expense equal to the fair value of the ESPP awards on a straight-line basis over the offering period.
15
| | | | | |
|
| June 30, 2020 | | June 30, 2019 | |
Dividend | | NaN | | NaN | |
Volatility | | 85.7% | | 67.3% | |
Risk-free interest rate | | 1.57% | | 2.51% | |
Expected life (years) | | 0.5 | | 0.5 | |
Stock compensation expense related to stock options and restricted stock awards granted under the stock plans and related to the ESPP was $2.1$3.4 million and $7.1$6.5 million during the three and six months ended June 30, 2019,2020, respectively, compared to stock compensation expense of $4.0$2.1 million and $7.7$7.1 million for the three and six months ended June 30, 2018,2019, respectively. The decrease in expense is primarily due to the impact of a change in the forfeiture estimate recorded in the current period as discussed above. Stock compensation expense related to the ESPP was $140,000 and $292,000 for the six months ended June 30, 2019.2020 and 2019, respectively. As of June 30, 2019,2020, the estimated fair value of unvested employee awards, exclusive of performance awards, was $17.9$23.2 million, net of estimated forfeitures. The weighted-average remaining vesting period for these awards is approximately twothree years. Also included in stock and deferred stock unit compensation expense in the consolidated statements of cash flows for the six months ended June 30, 2019 and 2018, is expense recorded for directors’ deferred share units, the details of which are discussed in Note F.
Segment Information
During the six months ended June 30, 2019,2020, the Company continued to operate in one1 operating segment, which is the business of discoverydevelopment of monoclonal antibody-based anticancer therapeutics.
The percentages of revenues recognized from significant customers of the Company inDuring the three and six months ended June 30, 20192020, 94% and 2018 are included96%, respectively, of revenues were from Roche, consisting primarily of non-cash royalty revenue, compared to 99% of revenue from Roche in each of the following table:
| | | | | | | | |
| | Three Months Ended | | Six Months Ended | ||||
| | June 30, | | June 30, | ||||
Collaborative Partner: |
| 2019 | | 2018 | | 2019 | | 2018 |
Roche | | 99% | | 78% | | 99% | | 50% |
Takeda | | - | | 1% | | - | | 39% |
Novartis | | - | | 11% | | - | | 4% |
three and six month periods ended June 30, 2019. There were no0 other customers of the Company withthat generated significant revenues in the three or six months ended June 30, 20192020 and 2018.2019.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-2, Leases (Topic 842) in order to increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease liabilities on the balance sheet. Most prominent among the changes in the standard is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. Under the standard, disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
In accordance with the transition method provided by ASC Update No. 2018-11, Leases (Topic 842): Targeted Improvements, the Company adopted and initially applied the new leasing rules on January 1, 2019, rather than at the earliest comparative period presented in the financial statements. Prior periods presented are in accordance with the previous lease guidance (ASC 840). See Note H for further discussion and impact of adoption.
The Company elected several of the available practical expedients, which are also outlined in Note H. The standard had a material impact to the Company’s consolidated balance sheets, but did not have an impact to the consolidated statement of operations. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while the accounting for finance leases, which consist entirely of single payment obligations made for equipment, remained substantially unchanged.
In June 2018, the FASB issued ASU No. 2018-07, Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. The Company adopted the standard on January 1, 2019, and it did not have a material effect on the Company’s consolidated financial statements.
16
Recently Issued Accounting Pronouncements, not yet Adopted
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 606 when the counterparty is a customer. In addition, ASU 2018-18 adds unit-of-account guidance to ASC Topic 808, Collaborative Arrangements, in order to align this guidance with ASC 606 and also 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 beis effective for annual reporting periods beginning after December 15, 2019, including interim periods within those annual reporting periods, and early adoption is permitted.periods. The Company is currently evaluatingadopted the potential impact that ASU 2018-18 maystandard on January 1, 2020, and it did not have a material effect on the Company’s consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments, to require financial assets carried at amortized cost to be presented at the net amount expected to be collected based on historical experience, current conditions, and forecasts. The ASU is effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted.2019. Adoption of the ASU is on a modified retrospective basis. The Company doesadopted the standard on January 1, 2020, and it did not expect this guidance to have a material impacteffect on itsthe Company’s consolidated financial statements.
15
No other recently issued or effective ASUs had, or are expected to have, a material effect on the Company's results of operations, financial condition, or liquidity.
C.Agreements
Significant Collaborative Agreements
Roche
In May 2000, the Company granted Genentech, now a member of the Roche Group, an exclusive license to use the Company’s maytansinoid ADC technology. Pursuant to this agreement, Roche developed and received marketing approval for its HER2-targeting ADC compound, Kadcyla, in the U.S., Europe, Japan, and numerous other countries. The Company receives royalty reports and royalty payments related to sales of Kadcyla from Roche one quarter in arrears. In accordance with the Company’s revenue recognition policy, $18.9$27.1 million and $14.4$18.9 million of non-cash royalties on net sales of Kadcyla were recorded and included in non-cash royalty revenue for the six months ended June 30, 2020 and 2019, and 2018.respectively. Kadcyla sales occurring after January 1, 2015 were covered by a royalty purchase agreement whereby the associated cash, except for a residual tail, was remitted to Immunity Royalty Holdings, L.P, or IRH. In January 2019, the Company sold its residual tail to OMERS, the defined benefit pension plan for municipal employees in the Province of Ontario, Canada, for a net payment of $65.2 million, as discussed further in Note E. Simultaneously, OMERS purchased IRH’s right to the royalties the Company previously sold as described above, therefore obtaining the rights to 100% of the royalties received from that date on.
On May 3, 2019, Roche notified the Company that the U.S. Food and Drug AdministrationFDA approved Kadcyla for adjuvant (after surgery) treatment of people with HER2-positive early breast cancer who have residual invasive disease after neoadjuvant (before surgery) taxane and Herceptin® (trastuzumab)-based treatment, resulting in a $5 million regulatory milestone payment to the Company for a first extended indication, which is included in license and milestone fees for the three and six months ended June 30, 2019. The Company is entitled to receive up to a total of $44 million in milestone payments pursuant to the license agreement, of which the Company has received $39 million to date. The next potential milestone the Company will be entitled to receive will be a $5 million regulatory milestone for marketing approval of Kadcyla for a second extended indication as defined in the license.
NovartisCytomX
TheIn 2016, the Company granted NovartisCytomX an exclusive development and commercialization licenseslicense to the Company’s maytansinoid and IGN ADC technology for use with antibodies to six specified targetsProbodies™ that target CD166 under a now-expirednow expired reciprocal right-to-test agreement established in 2010. The Company received a $45 million upfront payment in connection withagreement. Pursuant to the execution of the right-to-testlicense agreement, in 2010, and for each development and commercialization license taken for a specific target, the Company received an exercise fee of $1 million and is entitled to receive up to a total of $199.5$160.0 million in milestone payments plus royalties on the commercial sales of any resulting products.product. The total milestones are categorized as follows: development milestones—$10.0 million; regulatory milestones—$50.0 million; and sales milestones—$100.0 million. In May 2018, Novartis terminated oneDecember 2019, a development milestone related to dosing of a first patient in a Phase 2 clinical trial became probable of being attained, which resulted in $3.0 million of license and milestone fee revenue being recorded in 2019. In February 2020, CytomX enrolled its sixfirst patient in the aforementioned Phase 2 clinical trial, and subsequently remitted the $3.0 million milestone payment to the Company in March 2020. CytomX is responsible for the manufacturing, development, and marketing of any products resulting from the development and commercialization licenses. As a result,license taken by CytomX under this collaboration.
Terminated Agreements
During the second quarter, the Company recordedreceived notice of termination of the exclusive development and commercialization licenses granted to each of Biotest and Takeda. The Company had $870,000 of deferred revenue remaining $978,000 balancerelated to the portion of the upfront payment that had beenlicense fee from Takeda previously allocated to the right to future performancetechnological improvements. In consideration that no technological improvements would be further used by Takeda and, therefore, no unsatisfied obligations under thiswere remaining related to the license, the $870,000 was recorded as revenue whichand is included in license and milestone fees for the three and six months ended June 30, 2018.
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Takeda
In March 2015, the Company entered into a three-year right-to-test agreement with Takeda through its wholly owned subsidiary, Millennium Pharmaceuticals, Inc. The agreement provided Takeda with the right to (a) take exclusive options, with certain restrictions, to individual targets selected by Takeda for specified option periods, (b) test the Company’s ADC technology with Takeda’s antibodies directed to the targets optioned under a right-to-test, or research, license, and (c) take exclusive licenses to use the Company’s ADC technology to develop and commercialize products to targets optioned for up to two individual targets on terms specified in the right-to-test agreement. The first license was granted to Takeda in December 2015. In March 2018, the right-to-test agreement expired without Takeda exercising its option to a second license or extending or expanding the agreement as it had the right to do for a third license. Accordingly, the remaining $10.9 million of revenue that had been deferred for suchnotification, there were no unsatisfied performance obligations was recognized as revenue and is included in license and milestone fees for the six months ended June 30, 2018. In May 2018, Takeda enrolled its first patient in a Phase I clinical trial, triggering a $5 million milestone payment to the Company. Due to the likelihood of this milestone being attained, this milestone was recognized as a contract asset as part of the cumulative adjustment to transition to ASC 606. It had been previously allocated to the delivered license and the right to technological improvements. The next potential milestone payment the Company will be entitled to receive will be a $10 million development milestone payment with the initiation of a Phase II clinical trial. Takeda is responsible for the manufacturing, product development, and marketing of any products resulting from theor balances remaining license.
Debiopharm
In May 2017, Debiopharm acquired the Company’s IMGN529 program, a clinical-stage anti-CD37 ADC for the treatment of patients with B-cell malignancies. Under the terms of the Exclusive License and Asset Purchase agreement, the Company received a $25 million upfront payment for specified assets related to IMGN529 and a paid-up license to the Company’s ADC technology. Upon substantial completion of the transfer of the Company’s technologies related to the program (technology transfer) in the fourth quarter of 2017, the Company achieved a $5 million milestone, $4.5 million of which was received in December 2017 and the balance in January 2018 upon delivery of the final materials related to the transfer. Accordingly, $500,000 was recorded as license and milestone fee revenue in the six months ended June 30, 2018. In addition, the Company is eligible for a second success-based milestone payment of $25 million upon IMGN529 entering a Phase 3 clinical trial. The milestone payment will be significantly reduced if a Phase 3 trial using the Company’s technology but not the IMGN529 antibody commences prior to IMGN529 entering a Phase 3 trial. The Company does not believe this scenario is likely to occur.agreement with Biotest.
For additional information related to these agreements, as well as the Company’s other significant collaborative agreements, please read Note C, Agreements - Significant Collaborative Agreements, to the consolidated financial statements included within the Company’s 20182019 Annual Report on Form 10-K.10-K filed with the SEC on March 11, 2020.
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D.Convertible 4.5% Senior Notes
In 2016, the Company issued Convertible Notes with an aggregate principal amount of $100 million. The Company received net proceedsmillion, of $96.6 million from the sale of the Convertible Notes, after deducting fees and expenses of $3.4 million.
During the second half of calendar 2017, the Company entered into privately negotiated exchange agreements with a number of holders of the Company’s outstanding Convertible Notes, pursuant to which the Company agreed to exchange, in a private placement, $97.9 million in aggregate principal amount of Convertible Notes held by the holders for 26,160,187 newly issued shares of common stock, equivalent to the number of shares based on the original conversion terms, plus an additional number of newly issued shares of common stock determined based on the volume-weighted average trading price of the common stock over certain trading days. As a result of the agreements, 2,784,870 additional shares were issued.
The remaining $2.1 million remains outstanding as of June 30, 2020. The Convertible Notes are governed by the terms of an indenture between the Company, as issuer, and Wilmington Trust, National Association, as the trustee. The Convertible Notes are senior unsecured obligations and bear interest at a rate of 4.5% per year, payable semi-annually in arrears on January 1 and July 1 of each year, commencing on January 1, 2017. The Company recorded $47,000 of interest expense in each of the six months ended June 30, 20192020 and 2018,2019, respectively. The Convertible Notes will mature on July 1, 2021, unless earlier repurchased or converted. Holders may convert their notes at their option at any time prior to the close of business on the business day immediately preceding the stated maturity date. Upon conversion, the Company will deliver for each $1,000
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principal amount of converted notes a number of shares equal to the conversion rate, which will initially be 238.7775 shares of common stock, equivalent to an initial conversion price of approximately $4.19. The conversion rate will be subject to adjustment in some circumstances, but will not be adjusted for any accrued and unpaid interest.
E. | Liability Related to Sale of Future Royalties |
In 2015, IRH purchased the right to receive 100% of the royalty payments on commercial sales of Kadcyla subsequent to December 31, 2014, arising under the Company’s development and commercialization license with Genentech, until IRH had received aggregate royalties equal to $235 million or $260 million, depending on when the aggregate royalties received by IRH reach a specified milestone. Once the applicable threshold was met, if ever, the Company would thereafter have received 85% and IRH would have received 15% of the Kadcyla royalties for the remaining royalty term. At consummation of the transaction, the Company received cash proceeds of $200 million. As part of this sale, the Company incurred $5.9 million of transaction costs, which are presented net of the liability in the accompanying consolidated balance sheet and will beare being amortized to interest expense over the estimated life of the royalty purchase agreement. Although the Company sold its rights to receive royalties from the sales of Kadcyla, as a result of its then ongoing involvement in the cash flows related to these royalties, at the time, the Company will continuecontinues to account for these royalties as revenue and recorded the $200 million in proceeds from this transaction as a liability related to sale of future royalties (Royalty Obligation) that will be amortized using the interest method over the estimated life of the royalty purchase agreement.
In January 2019, the Company sold its residual rights to receive royalty payments on commercial sales of Kadcyla to OMERS, the defined benefit pension plan for municipal employees in the Province of Ontario, Canada, for a net payment of $65.2 million (amount is net of $1.5 million in contingent broker fees). Simultaneously, OMERS purchased IRH’s right to the royalties the Company previously sold as described above, therefore obtaining the rights to 100% of the royalties received from that date on. Because the Company will not be involved with the cash flows related to the residual royalties, the $65.2 million of net proceeds received from the sale of its residual rights to receive royalty payments was recorded as long-term deferred revenue and will be amortized as the cash related to the residual rights is received using the units of revenue approach. During the six months ended June 30, 2019,2020, the Company did not receive any royalties related to the residual rights, therefore, no0 revenue from this sale was recognized. Additionally, the purchase of IRH’s interest by OMERS did not result in an extinguishment or modification of the original instrument and, accordingly, the Company will continue to account for the remaining obligation as a liability as outlined above.
The following table shows the activity within the liability account during the six-month period ended June 30, 20192020 (in thousands):
| | | | | | | |
| | | | | | | |
| | Six Months Ended | | Six Months Ended | | ||
|
| June 30, 2019 |
| June 30, 2020 | | ||
Liability related to sale of future royalties, net — beginning balance | | $ | 148,225 | | $ | 123,541 | |
Kadcyla royalty payments received and paid | |
| (17,718) | |
| (28,109) | |
Non-cash interest expense recognized | | | 7,242 | | | 11,775 | |
Liability related to sale of future royalties, net — ending balance | | $ | 137,749 | | $ | 107,207 | |
As royalties are remitted to IRH and subsequently OMERS, the balance of the Royalty Obligation will be effectively repaid over the life of the agreement. In order to determine the amortization of the Royalty Obligation, the Company is required to estimate the total amount of future royalty payments to be received and remitted as noted above over the life of the underlying license agreement with Genentech covering Kadcyla. The sum of these amounts less the $200
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$200 million proceeds the Company received will be recorded as interest expense over the life of the Royalty Obligation. Since inception, the Company’s estimate of this total interest expense results in an effective annual interest rate of 8.6%10.5%, and a current effective interest rate of 10.0%20.5% as of June 30, 2019.2020. The Company periodically assesses the estimated royalty payments to IRH/OMERS and to the extent such payments are greater or less than its initial estimates, or the timing of such payments is materially different than its original estimates, the Company will prospectively adjust the amortization of the Royalty Obligation. There are a number of factors that could materially affect the amount and timing of royalty payments from Genentech, most of which are not within the Company’s control. Such factors include, but are not limited to, changing standards of care, the introduction of competing products, manufacturing or other delays, biosimilar competition, patent protection, adverse events that result in governmental health authority imposed restrictions on the use of the drug products, significant changes in foreign exchange rates as the royalties are paid in U.S. dollars (USD) while significant portions of the underlying sales of Kadcyla are made in currencies other than USD, and other events or circumstances that
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could result in reduced royalty payments from Kadcyla, all of which would result in a reduction of non-cash royalty revenues and the non-cash interest expense over the life of the Royalty Obligation. Conversely, if sales of Kadcyla are more than expected, the non-cash royalty revenues and the non-cash interest expense recorded by the Company would be greater over the term of the Royalty Obligation.
In addition, the royalty purchase agreement grants IRH/OMERS the right to receive certain reports and other information relating to the royalties and contains other representations and warranties, covenants, and indemnification obligations that are customary for a transaction of this nature.
F. | Capital Stock |
2001 Non-Employee Director Stock Plan
During the three and six months ended June 30, 2018, the Company recorded $4,000 and $31,000 in expense related to stock units outstanding under the Company’s 2001 Non-Employee Director Stock Plan, or the 2001 Plan. A market value of $72,000 for the stock units was paid to a retiring director in June 2018, effectively terminating the plan.
Compensation Policy for Non-Employee Directors
During the three and six months ended June 30, 2019, the Company recorded $100,000 and $200,000 in compensation expense, respectively, related to deferred share units issued and outstanding under the Company’s Compensation Policy for Non-Employee Directors, compared to $54,000 and $156,000 in compensation expense recorded during the three and six months ended June 30, 2018, respectively.
Pursuant to the Compensation Policy for Non-Employee Directors, the redemption amount ofNon-Employee Directors are granted deferred share units issued will be paid in shares of common stock of the Company on the date a director ceases to be a member of the Board. In February 2018 and June 2018, the Company issued retiring directors 77,012 and 95,497 shares of common stock of the Company to settle outstanding deferred share units. Annualfor their annual retainers which vest quarterly over approximately one year from the date of grant, contingent upon the individual remaining a director of ImmunoGen as of each vesting date. The number of deferred share units awarded is fixed per the plan on the date of the award. All unvested deferred stock awardsshare units will automatically vest immediately prior to the occurrence of a change of control. The redemption amount of deferred share units issued will be paid in shares of common stock of the Company on the date a director ceases to be a member of the Board.
In addition to the deferred share units, the Non-Employee Directors are also entitled to receive a fixed number of stock options on the date of the annual meeting of shareholders. These options vest quarterly over approximately one year from the date of grant. Any new directors will receive a pro-rated award, depending on their date of election to the Board.
In June 2020, the Compensation Policy for Non-Employee Directors was amended, resulting in annual deferred share units grants increasing from 4,000 to 17,000 units, and annual stock option grants increasing from 18,000 to 50,000 options. There were no substantial changes to the terms of the awards.
The directors received a total of 108,000300,000 and 128,000108,000 options in June 20192020 and 2018,2019, respectively, and the related compensation expense for the three and six months ended June 30, 20192020 and 20182019 is included in the amounts discussed in the “Stock-Based Compensation” section of Note B above.
G.Restructuring ChargesCharge
2019 Corporate Restructuring
On June 26, 2019, the Board of Directors approved a plan to restructure the business to focus resources on continued development of mirvetuximab soravtansine and a select portfolio of three earlier-stage product candidates, resulting in a significant reduction of ourthe Company’s workforce, by approximately 220 positions, with a majority of these employees separating from the business by mid-July 2019 and most of the remaining affected employees transitioning over varying periods of time of up to 12 months. Communication of the plan to the affected employees was substantially completed on June 27, 2019.
As a result of the workforce reduction, during the three months ended June 30, 2019, the Company recorded a $16.0 million charge for severance related to a pre-existing plan in accordance with ASC 712, Compensation-Nonretirement Postemployment Benefits, as such amounts arewere probable and reasonably estimable. The estimate was later reduced to $15.3 million due to minor adjustments to the plan. The related cash payments will bewere substantially paid out by June 30, 2020. In addition, an anticipateda charge of $3.7$4.0 million is expected to bewas incurred for incremental retention benefits over the same time period, of which approximately $400,000 was recorded during the three and six months ended June 30, 2019. No payments were made during the three and six months ended June 30, 2019 with respect to this action.
In addition to the termination benefits and other related charges, the Company will seek to sub-lease the majority of the laboratory and office space at 830 Winter Street in Waltham, Massachusetts. The financial impact of these efforts is dependent on the length of time it takes to find a tenant and the terms of the sub-lease. The decision to vacate part of its
2018
period, of which $2.4 million was recorded during the year ended December 31, 2019 and $1.6 million was recorded during the six months ended June 30, 2020.
A summary of activity against the corporate restructuring charge related to the employee terminations in 2020 is as follows:
| | | |
| | Employee | |
| | Termination | |
|
| Benefits Costs | |
Balance at December 31, 2019 | | $ | 4,087 |
Additional charges/adjustments during the period | | | (116) |
Payments during the period | | | (2,242) |
Balance at June 30, 2020 | | $ | 1,729 |
In addition to the termination benefits and other related charges, the Company is seeking to sub-lease laboratory and office space at 830 Winter Street in Waltham, Massachusetts no longer used in the business. The financial impact of these efforts is dependent on the length of time it takes to find tenant(s) and the terms of the sub-lease(s). The decision to vacate part of its corporate office resulted in a change in asset groupings and also represented an impairment indicator. The Company determined and continues to believe that the right-of-use asset and leasehold improvements wereare recoverable based on expected sub-lease income, and therefore, no impairment washas been recorded.
In addition, the Company also decided to liquidate excess laboratory equipment and expects the proceeds to be less than the carrying value. As a result, the Company recorded an impairment charge of $2.5 million to write down the equipment to fair value based on current market re-sale estimates obtained.
2018 Manufacturing Restructuring
In February 2018, following an in-depth review of manufacturing and quality operations, the Board of Directors authorized management to implement a new operating model that will rely on external manufacturing and quality testing for drug substance and drug product for the Company’s development programs. The implementation of this new operating model led to the ramp-down of manufacturing and quality activities at the Norwood, Massachusetts facility by the end of 2018, and a full decommissioning of the facility in February 2019. Implementation of the new operating model resulted in the separation of 22 employees. Communication of the plan to the affected employees was substantially completed on February 8, 2018.
In connection with the implementation of the new operating model, the Company recorded a one-time charge of $1.2 million for severance related to a pre-existing plan in the first quarter of 2018 in accordance with ASC 712, Compensation-Nonretirement Postemployment Benefits, as such amounts were probable and reasonably estimable. Additional expense was recorded for incremental retention benefits over the remaining service period of the related employees, which totaled $1.1 million for the six months ended June 30, 2018, all of which was paid out by the end of 2018. Additionally, certain options held by the employees to be separated were modified to extend the exercise period, resulting in a stock compensation charge of $157,000 in the first quarter of 2018. Cash payments related to severance were substantially paid out by June 30, 2019.
A summary of activity against the manufacturing restructuring charge related to the employee terminations in 2018 is as follows:
| | | |
| | Employee | |
| | Termination | |
|
| Benefits Costs | |
Balance at December 31, 2018 | | $ | 841 |
Payments during the period | | | (816) |
Balance at June 30, 2019 | | $ | 25 |
2016 Corporate RestructuringCharge Related to Unoccupied Office Space
As a result of a workforce reduction in September 2016, theThe Company began seekinghas sought to sub-lease 10,281 square feet of unoccupied office space at 930 Winter Street in Waltham, Massachusetts that was leased in 2016. During the six months ended June 30, 2019, the Company recorded a $559,000 impairment charge related to this lease, which representsrepresented the remaining balance of the right to use asset as the likelihood of finding a sub-lessor hashad diminished significantly as the lease approachesapproached termination. No such charges were recorded in the prior year period.
H. | Leases |
The Company currently has the following two2 real estate leases: (i)leases. The first is an agreement with CRP/King 830 Winter L.L.C. for the rental of approximately 120,000 square feet of laboratory and office space at 830 Winter Street, Waltham, MAMassachusetts through March 2026. The Company uses this space for its corporate headquarters and other operations. The Company may extend the lease for two2 additional terms of five years. The Companyyears and is required to pay certain operating expenses for the leased premises subject to escalation charges for certain expense increases over a base amount;amount. The Company is actively seeking to sub-lease approximately 65,000 square feet of this space and, (ii)during the six months ended June 30, 2020, executed 3 subleases for approximately 47,000 square feet through the remaining initial term of the lease. The second real estate lease is an agreement with PDM 930 Unit, LLC for the rental of 10,281 square feet of additional office space at 930 Winter Street, Waltham, MAMassachusetts through August 31, 2021. The Company is required to pay certain operating expenses for the leased premises based on its pro-rata share of such expenses for the entire rentable space of the building. The Company is actively seeking to sub-lease the 930 Winter Street space, and as a result of the 2019 corporate restructuring plan announced in June 2019, will begin to seek to sublease a significant portion of the space at 830 Winter Street. The Company ended its lease and vacated its manufacturing and office space at 333 Providence Highway, Norwood, MA in February 2019 pursuant to the manufacturing restructuring plan described previously.this space.
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In addition to the two real estate leases noted above, the Company currently has a lease agreement through November 2023 for the rental of copier equipment.
During the first quarter of 2019, the Company adopted the new lease standard by recognizing and measuring leases existing at, or entered into after, January 1, 2019. In accordance with the transition method provided by ASC Update No. 2018-11, Leases (Topic 842): Targeted Improvements, the Company adopted and initially applied the new leasing rules on January 1, 2019, rather than at the earliest comparative period presented in the financial statements. Therefore, prior periods presented are in accordance with the previous lease guidance (ASC 840). As permitted by the new lease standard, the Company elected to apply the following practical expedients to the entire lease portfolio: (i) not to reassess whether any expired or existing contracts are or contain leases or the classification of any expired or existing leases; (ii) not to apply the recognition requirements to short-term leases; and, (iii) not to separate fixed nonlease components from associated lease components for the underlying assets.
Upon adoption of ASC 842 in January 2019, a ROU asset of $17.6 million and a lease liability of $27.3 million were recorded and are identified separately in the Company’s consolidated balance sheets for the existing operating leases. There was no impact to the consolidated statements of operations. Upon adoption, the amount of the ROU assets recorded was offset by the applicable unamortized lease incentive and straight-line lease liability balances of $9.7 million and, therefore, there was no impact to accumulated deficit. There were no initial direct costs related to the leases to consider. The Company’s operating lease liabilities related to its real estate lease agreements were calculated using a collateralized incremental borrowing rate. The Company’s operating lease liability related to its equipment lease was calculated using an implicit rate provided in the lease. The weighted average discount rate for the operating lease liability is approximately 11%. A 100 basis point change in the incremental borrowing rate would result in less than a $1 million impact to the ROU assets and liabilities recorded. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term, which for the six months ended June 30, 2020 and 2019 and 2018 was $2.3$2.0 million and $2.8$2.3 million, respectively, and is included in operating expenses in the consolidated income statements.statement of operations. During the six months ended June 30, 2019, the Company recorded $559,000 of impairment charges related to its 930 Winter Street lease, which represented the remaining balance of the ROU asset as the likelihood of finding a sub-lessor had diminished significantly as the lease approached termination. Cash paid against operating lease liabilities during the six months ended June 30,
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2020 and 2019 was $2.7 million and $2.6 million.million, respectively. As of June 30, 2019,2020, the Company’s ROU assetsasset and lease liabilitiesliability for operating leases totaled $16.4$14.9 million and $26.1$23.3 million, respectively, and the weighted average remaining term of the operating leases is approximately seven5.6 years.
The Company’s finance leases consist entirely of single payment obligations that have been made for equipment. The related asset balances, net of accumulated amortization, of $1.4 million and $595,000 as of June 30, 2019 and December 31, 2018, respectively, are included in property and equipment in the consolidated balance sheets. Amortization expense of $159,000 and $93,000 for the six months ended June 30, 2019 and 2018, respectively, is included in operating expenses in the consolidated income statements. There are no obligations under finance leases as of June 30, 2019, as all of the finance leases were single payment obligations which have all been made.
The maturities of operating lease liabilities discussed above are as follows (in thousands):
| | | | | | |
2019 (six months remaining) |
| $ | 2,698 | |||
2020 | |
| 5,485 | |||
2020 (six months remaining) |
| $ | 2,753 | |||
2021 | |
| 5,324 | |
| 5,323 |
2022 | |
| 5,389 | |
| 5,389 |
2023 | |
| 5,510 | |
| 5,510 |
2024 | |
| 5,470 | |||
Thereafter | |
| 12,336 | |
| 6,865 |
Total lease payments | | | 36,742 | | | 31,310 |
Less imputed interest | | | (10,647) | | | (7,976) |
Total lease liabilities | | $ | 26,095 | | $ | 23,334 |
In addition to the amounts in the table above, the Company is also responsible for variable operating costs and real estate taxes approximating $3.0that are expected to approximate $3.4 million per year through March 2026.
Sublease Income
In January, March, and April 2020, the Company executed 3 agreements to sublease a total of 47,160 square feet of the Company’s leased space at 830 Winter Street, Waltham, Massachusetts through March 2026. During the six months ended June 30, 2020, the Company recorded $713,000 of sublease income, which is included as an offset to operating expenses in the consolidated statement of operations.
Two of the three sublease agreements include an early termination option after certain periods of time for an agreed-upon fee. Assuming no early termination option is exercised, the Company will receive approximately $13.0 million in minimum rental payments over the remaining term of the subleases, which is not included in the operating lease liability table above. The sublessees are also responsible for their proportionate share of variable operating expenses and real estate taxes.
I.
Commitments and ContingenciesCollaborations
The Company is contractually obligated to make potential future success-based development, regulatory, or sales milestone payments in conjunction with certain collaborative agreements. These payments are contingent upon the occurrence of certain future events and, given the nature of these events, it is unclear when, if ever, the Company may be
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required to pay such amounts. Further, the timing of any future payment is not reasonably estimable. As of June 30, 2019, the maximum amount that may be payable in the future under the Company’s current collaborative agreements is $80.0 million.
Manufacturing Commitments
As of June 30, 2019, the Company has noncancelable obligations under agreements related to in-process and future manufacturing of cytotoxic agents required for clinical supply of the Company’s product candidates totaling $1.5 million, all of which will be paid in 2019.
Additionally, inIn 2018, the Company executed a commercial agreement with one of its manufacturers for the future production of antibody through calendar 2025. In May 2019, the agreement was amended to reduce the number of committed antibody batches for an agreed-upon exit fee, which was recorded as research and development expense in the first quarter of 2019. As of June 30, 2019,After further negotiations, the Company’s noncancelable commitment ranges from €2.3 to €15.1for future production is approximately €11 million pursuant to contingent terms of the agreement, including the manufacturer’s ability to fill the Company’s unused capacity with production for other customers.at June 30, 2020.
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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following information should be read in conjunction with the unaudited financial information and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q, and the consolidated financial statements and notes thereto for the year ended December 31, 2019 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K filed with the United States Securities and Exchange Commission, or the SEC, on March 11, 2020.
OVERVIEW
We are a clinical-stage biotechnology company focused on developing the next generation of antibody-drug conjugates, or ADCs to improve outcomes for cancer patients. By generating targeted therapies with enhanced anti-tumor activity and favorable tolerability profiles, we aim to disrupt the progression of cancer and offer patients more good days. We call this our commitment to “target‘‘target a better now.”’’
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An ADC with our proprietary technology comprises an antibody that binds to a target found on tumor cells and is conjugated to one of our potent anti-cancer agents as a “payload”‘‘payload’’ to kill the tumor cell once the ADC has bound to its target. ADCs are an expanding approach to the treatment of cancer, with fiveeight approved products and the number of agents in development growing significantly in recent years.
We have established a leadership position in ADCs with a portfolio of differentiated product candidates addressingto address both solid tumors and hematological malignancies.
Managing the Impact of the COVID-19 Pandemic
During the first quarter of 2020, we moved forward with our clinical studies, while adapting to meet the evolving challenges of the COVID-19 pandemic. With the benefit of early indications of the impact of COVID-19 in the Boston area, we implemented business continuity plans in the first half of March 2020, which allowed our organization to effectively transition to working from home. Since then, we have worked closely with our external partners to monitor progress across our studies and to respond to new developments as they arise. From a manufacturing and supply chain perspective, we entered the pandemic with ample drug product and believe we have sufficient inventory on hand for all of our ongoing mirvetuximab monotherapy and combination trials, IMGN632 expansion studies, and to support the planned Phase 1 study for IMGC936. Furthermore, our supply partners have taken prospective measures that we believe will ensure our currently activated study sites have sufficient safety stock of drug product to weather disruptions in transportation or supply. In addition, from a regulatory perspective, since the beginning of the pandemic we have received timely reviews of our submissions to the FDA and other health authorities covering our clinical trial applications.
While we have maintained a high level of productivity over the last quarter, the impact of COVID-19 has slowed site activation and patient enrollment for SORAYA, our single-arm clinical trial to support accelerated approval of mirvetuximab, which we believe will result in a limited delay of six- to eight-weeks in the readout of topline data. With conditions improving in Europe, we expect to accelerate both SORAYA and MIRASOL, our confirmatory study for mirvestuximab monotherapy, over the remainder of 2020 and continue to anticipate filing the biologics license application for mirvetuximab in the second half of 2021. We continue to actively monitor trial progress on a global scale and maintain close contact with our clinical research partners, study sites, and internal review boards to ensure activation of sites, enrollment of patients and data collection are proceeding in accordance with good clinical practice.
Our Business
Our lead program is mirvetuximab soravtansine, a first-in-class investigational ADC targeting folate-receptorfolate receptor alpha, or FRα., a cell-surface protein overexpressed in a number of epithelial tumors, including ovarian, endometrial, and non-small-cell lung cancers. In March of 2019, we announced that FORWARD I, our Phase 3 clinical trial evaluating mirvetuximab compared to chemotherapy in women with FRα-positive platinum-resistant epithelial ovarian, primary peritoneal, or fallopian tube cancer, which we refer to collectively as PROC, did not meet the primary endpoint.endpoint in either the entire treatment population or the pre-specified high FRα expression population. Data from FORWARD I did, however, demonstrate a consistentshow promising efficacy signalsignals across a range of parameters in the pre-specified subset of patients with high FRα expression. In post hoc exploratory analyses using a PS2+ scoring method, in the FRα-high population scored by the PS2+ method, mirvetuximab was associated with longer progression free survival, by blinded independent review committee, a higher overall response rate, and longer overall survival.
Following consultation with the U.S. FoodFDA, we moved forward with two new trials of mirvetuximab: SORAYA, a single-arm clinical trial that, if successful, could lead to accelerated approval of mirvetuximab; and Drug Administration (FDA), we will pursueMIRASOL, a newrandomized Phase 3 clinical trial that, if successful, could lead to full approval of mirvetuximab. We are actively enrolling both studies and now expect to report top-line data from SORAYA in the third quarter of 2021. With an earlier start and a longer lead time, MIRASOL remains on track, with top-line data expected in the first half of 2022. If SORAYA is successful, as previously noted, we expect to submit an application for accelerated approval of mirvetuximab in the applicable patient population to the FDA during the second half of 2021 and to thereafter seek full approval on the basis of a confirmatory Phase 3 trial, MIRASOL.
In May 2020, we presented initial data from the FORWARD II study evaluating mirvetuximab in combination with Avastin® (bevacizumab) in patients with medium and high FRα-expressing recurrent ovarian cancer for whom a non-platinum based combination regimen is appropriate at the American Society of Clinical Oncology 2020 Virtual Scientific Program. We believe the combination of mirvetuximab with bevacizumab in this cohort demonstrated promising anti-tumor activity with a favorable tolerability profile, particularly among patients with high levels of FRα expression, and is
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encouraging relative to outcomes with available therapies reported in similar patient populationpopulations. We continue to evaluate mirvetuximab in combination with other agents and pending regulatory review, planexpect to begin enrollingpublish mature data from the Phase 1b FORWARD II triplet cohort evaluating mirvetuximab in combination with carboplatin and bevacizumab in patients with recurrent, platinum-sensitive ovarian cancer while also supporting the initiation of an investigator sponsored, randomized trial comparing mirvetuximab plus carboplatin versus standard platinum-based therapy in this study byrecurrent platinum-sensitive ovarian cancer in the endfourth quarter of the year.
2020.
In light of these developments, we have undertakenWe undertook a review of our operations during the second quarter of 2019 with the goals of prioritizing our portfolio and reducing our cost base to ensure that our cash resources will be sufficient to advance thesecertain of our programs through the next stages of development. Based on the outcomesoutcome of this operational review and subsequent consultation with the FDA, we have established three strategic priorities for the business: secure initial approval(i) execute SORAYA and MIRASOL and pursue label expansionthe development of additional indications for mirvetuximab in ovarian cancer; (ii) advance a select portfolio of three earlier-stage product candidates; and (iii) further strengthen our balance sheet and expand our capabilities through partnering. Consistent with these priorities, we have focused our operations on the following activities:
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● |
● |
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Correspondingly,As part of our ongoing development efforts, we have reduced ongoing expenses through the following portfolio prioritization and restructuring initiatives:
Mirvetuximab. For mirvetuximab monotherapy,developed a new class of cytotoxic payloads that we will present full data from FORWARD I in an oral presentation at the European Society for Medical Oncology (ESMO) Congress in late September. In parallel, we will meet with the FDA and European Medicines Agency (EMA) in the second half of this yearrefer to review the design of the next Phase 3 study to support registration of mirvetuximab as a monotherapy for women with FRα-high, platinum-resistant ovarian cancer. Pending the outcome of these regulatory discussions, we expect to initiate this study by the end of this year.
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Mirvetuximab is also being assessed in multiple combinations in FORWARD II, a Phase 1b/2 study,IGNs. Our IGNs are designed to expandalkylate DNA without cross-linking, which has provided a broad therapeutic index in preclinical models. Specifically, IGN ADCs have retained the market opportunity into earlier linesanti-tumor potency of ovarian cancer. To date, wecrosslinking drugs with less toxicity to normal cells in in vitro and animal models. These properties have presented combinationallowed for repeat administration of ADCs with IGN payloads in clinical studies and as supported by preclinical data, from more than 100 patients in cohorts combining mirvetuximabsuggest that ADCs with Keytruda® (pembrolizumab), Avastin® (bevacizumab), and carboplatin. Most recently, we presented mature data from the doublet cohort of mirvetuximabIGN payloads may be able to be added to other agents in combination regimens.
IMGN632 is an investigational ADC comprised of a high affinity antibody designed to target CD123 with bevacizumab at the American Society of Clinical Oncology (ASCO) 2019 annual meeting, which demonstrated significant anti-tumor activity with durable responses and a favorable tolerability profile, particularly among the subset of patients who have received upsite specific conjugation to two prior lines of therapy and have medium or high levels of FRα expression. Based upon these data as well as previously reported outcomes with a carboplatin doublet, we have moved forward with a cohort assessing a triplet combination of mirvetuximab plus carboplatin and bevacizumab in patients with recurrent platinum-sensitive ovarian cancer.our most potent IGN payload. We completed enrollment of the triplet in late 2018 and will report initial data from this cohort at ESMO in September. Finally, to address evolving market conditions, we are enrolling a second mirvetuximab plus bevacizumab cohort in patients with recurrent ovarian cancer, regardless of platinum status, which we expect to complete in the third quarter of this year.
IMGN632. We have made significant progress withadvancing IMGN632 our CD123-targeting product candidate in clinical trials for patients with AML and BPDCN. InitialBPDCN in collaboration with Jazz. We presented data from theour Phase 1 studyclinical trial of IMGN632 in patients with relapsed or refractory adult AML and BPDCN were presented at the Annual Meeting of the American Society of Hematology (ASH) Annual Meeting in December 2018. These data showed that IMGN632 demonstrated anti-leukemic activity across all dose levels tested andof 2019. We have also determined a tolerable safety profile at doses up to 0.3 mg/kg.
In the second quarter of this year, we determined the recommended Phase 2 dose and schedule for IMGN632 and have filedinitiated a new protocol to move forwardclinical trial with combination studiescombinations in relapsed refractory AML as well as monotherapy in front-line patients with minimal residual disease following induction therapy. In addition, we continue to enroll relapsed refractoryare pursuing an expansion cohort in BPDCN patients under our existinginitial protocol. We will share data for both AML and BPDCN patients at ASH in December.
Preclinical Programs. We continue to advance select preclinical programs, led by IMGC936. IMGC936 is a first-in-classan investigational ADC targetingin co-development with MacroGenics designed to target ADAM9, an enzyme overexpressed in a range of solid tumors and implicated in tumor progression and metastasis. This ADC incorporates a number of innovations, including antibody engineering to extend half-life, site-specific conjugation with a fixed drug-antibody ratio to enable higher dosing, and a next-generation linker and payload for improved stability and bystander activity. We reported encouraging preclinical safety and activity data from this program at the American Association of Cancer Research (AACR) meeting and expect theThe IND for IMGC936 to be filedwas accepted by the FDA in the first halfsecond quarter of 2020 and we expect to begin enrolling patients in the Phase 1 study in the fall of 2020.
Finally, we expectpresented encouraging preclinical data on our next generation anti-folate receptor alpha candidate, to moveIMGN151, at the American Academy of Cancer Research Virtual Annual Meeting II in June 2020. This ADC moved into preclinical development next year.in the second quarter of 2020 and we expect to file the IND for IMGN151 in the second half of 2021.
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Collaborating on ADC development with other companies allows us to generate revenue, mitigate expenses, enhance our capabilities, and extend the reach of our proprietary platform. The most advanced partner program is Roche’s marketed product, Kadcyla® (ado-trastuzumab emtansine), the first ADC to demonstrate superiority over standard of care in a randomized pivotal trial, EMILIA, and gain FDA approval.. Our ADC technology is also used in candidates in clinical development with a number of partners. We have evolved our partnering approach to pursue relationships where we can gain access to technology and complementary capabilities, such as our technology swap with CytomX, as well as co-development and co-commercialization opportunities, such as our relationships with Jazz and MacroGenics. In addition, following our restructuring in 2019, we seek to monetize our remaining portfolio and platform technologies through out-licensing transactions or asset sales. To this end, in December 2019, we granted an exclusive development and commercialization license to our cytotoxic payload technology to CytomX for use with antibodies (and Probodies™ developed therefrom) directed to EpCAM, including certain of our proprietary anti-EpCAM antibodies developed into Probodies utilizing CytomX’s Probody technology, in return for which we received an upfront payment from CytomX with the potential for additional payments following CytomX’s successful achievement of pre-defined clinical development, approval, and commercialization milestones, as well as royalties on net sales.
We expect that substantially all of our revenue for the foreseeable future will result from payments under our collaborative arrangements. For more information concerning these relationships, including their ongoing financial and accounting impact on our business, please read Note C, “Significant Collaborative Agreements,” to our consolidated financial statements included in this report.report and in our Annual Report on Form 10-K filed with the SEC on March 11, 2020.
To date, we have not generated revenues from commercial sales of internal products and we expect to continue to incur significant operating losses for the foreseeable future. As of June 30, 2019,2020, we had $239.8$219.5 million in cash and cash equivalents compared to $262.3$176.2 million as of December 31, 2018.2019.
In January 2020, we announced the closing of a public offering of 24.5 million shares of common stock at a price of $4.25 per share. We received net proceeds from the offering of $97.7 million after deducting underwriting discounts and offering expenses. We intend to use the net proceeds of the offering, together with our existing capital, to fund our operations, including, but not limited to, clinical trial activities, supply of drug substance and drug product, pre-commercialization activities, capital expenditures, and working capital.
Critical Accounting Policies
We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported
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amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to our collaborative agreements, clinical trial accruals, and stock-based compensation. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.
We adopted ASC 842 using the transition method provided by ASC Update No. 2018-11, Leases (Topic 842): Targeted Improvements. Under this method, we initially applied the new leasing rules on January 1, 2019, rather than at the earliest comparative period presented in the financial statements. Prior periods presented will be in accordance with previous guidance issued under ASC 840. The adoption of ASC 842 represents a change in accounting principle that will increase transparency and comparability among organizations by recognizing lease assets and liabilities on the balance sheet, including those previously classified as operating leases under ASC 840, and disclosing key information about leasing arrangements. Refer to Note B to the consolidated financial statements for further discussion on this change. There were no other significant changes to our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.
RESULTS OF OPERATIONS
Comparison of Three Months ended June 30, 20192020 and 20182019
Revenues
Our total revenues for the three months ended June 30, 2020 and 2019 and 2018 were $15.5$15.0 million and $9.3$15.5 million, respectively. The $6.2$0.5 million increasedecrease in revenues in the three months ended June 30, 20192020 from the same period in the prior year is primarily attributable to increasesa decrease in license and milestone fees, andpartially offset by an increase in non-cash royalty revenue, both of which isare discussed further below.
License and milestone feesMilestone Fees
The amount of license and milestone fees we earn is directly related to the number of our collaborators, the advancement of product candidates covered by the agreements with our collaborators, and the overall success in the clinical trials of these product candidates. As such, the amount of license and milestone fees may vary significantly from quarter to quarter and year to year. License and milestone fee revenue was $5.1 million$945,000 and $1.3$5.1 million for the three months ended June 30, 2020 and 2019, and 2018, respectively. Included in license and milestone fees forDuring the three months ended June 30, 2019 is a $5 million regulatory milestone achieved under ourcurrent quarter, following notice of termination of the license agreement with Genentech, a member ofTakeda, the Roche Group. In May 2018, Novartis terminated one of its six development and commercialization licenses. As a result, weCompany recorded the remaining $978,000$870,000 balance of the upfront payment that had been allocated to the right to future performance obligationstechnological improvements under this license as revenue, which is included in license and milestone fees for the three months ended June 30, 2018.2020. Included in license and milestone fees for the three months
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ended June 30, 2019 is a $5.0 million regulatory milestone achieved under our license agreement with Genentech, a member of the Roche Group.
Deferred revenue of $145.9$126.6 million as of June 30, 20192020 includes a $75$60.5 million remaining from an upfront payment related to the license options granted to Jazz in August 2017 and $65.2 million related to the sale of our residual rights to receive royalty payments on commercial sales of Kadcyla, with the remainder of the balance primarily representing consideration received from our collaborators pursuant to our license agreements which we have yet to earn pursuant to our revenue recognition policy.
Non-cash Royalty revenueRevenue Related to the Sale of Future Royalties
Kadcyla is an ADC marketed product resulting from one of our development and commercialization licenses with Roche, through its Genentech unit. We receive royalty reports and payments related to sales of Kadcyla from Roche one quarter in arrears. In accordance with ASC 606, however, we record an estimate of the amount of royalties earned on Kadcyla sales within the period. Consistent with thisour revenue recognition policy we recorded $10.4$14.1 million and $7.2$10.4 million of non-cash royalties on net sales of Kadcyla for the three-month periods ended June 30, 2020 and 2019, respectively. The increase in 2020 compared to 2019 is a result of an increase in royalty payments driven by an increase in net sales of Kadcyla, due to market expansion of Kadcyla and 2018, respectively.approval of Kadcyla for a second indication in 2019. Kadcyla sales occurring after January 1, 2015 are covered by a royalty purchase agreement whereby the associated cash was remitted to Immunity Royalty Holdings, L.P., or IRH, subject to a residual cap. In January 2019, we sold our residual rights to receive royalty payments on commercial sales of Kadcyla to OMERS the defined benefit pension plan for municipal employees in the Province of Ontario, Canada, for a net payment of $65.2 million, (amount is net of $1.5 million of contingent broker fees).fees. Simultaneously, OMERS purchased IRH’s right to the royalties the Company previously sold as described above, thereby obtaining the rights to 100% of the royalties received from that date on. See further details regarding the royalty obligation in Note E, “Liability Related to Sale of the Consolidated Financial Statements.
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Research and development support revenue
The amount of research and development support revenue we earn is directly relatedFuture Royalties,” to requests we receive from collaborators for research and development work under our agreements with them. As such, the amount of these fees may vary widely from quarter to quarter and year to year. Research and development support revenue was $51,000 for the three months ended June 30, 2019 compared with $388,000 for the three months ended June 30, 2018.
Clinical materials revenue
Clinical materials revenue was $336,000 for the three months ended June 30, 2018. We decommissioned our manufacturing facilityconsolidated financial statements included in 2018 and no longer produce preclinical and clinical materials on behalf of our collaborators.this report.
Research and Development Expenses
Our research and development expenses relate to (i) research to evaluate new targets and to develop and evaluate new antibodies, linkers, and cytotoxic agents, (ii) preclinical testing of our own and, in certain instances, our collaborators’ product candidates and the cost of our own clinical trials, (iii) development related to clinical and commercial manufacturing processes, and (iv) external manufacturing operations, and prior to 2019, internal manufacturing operations, which also included raw materials.operations.
Research and development expense for the three months ended June 30, 20192020 decreased $10.1$5.7 million to $28.6$22.9 million from $38.7$28.6 million for the three months ended June 30, 2018,2019, due primarily to decreaseddecreases in personnel expenses, driven by adjustments made in the current period to bonusallocated facility expenses, lab supplies, and stock compensation expense as a result ofthird-party research expenses resulting from the restructuring of the business decreased clinical trial costs primarily related toat the FORWARD I Phase 3 study, and lower external manufacturing costs.end of the second quarter of 2019. We do not track our research and development costs by project. Since we use our research and development resources across multiple research and development projects, we manage our research and development expenses within each of the categories listed in the following table and described in more detail below (in thousands):
| | | | | | |
| | Three Months Ended June 30, | ||||
Research and Development Expense |
| 2019 |
| 2018 | ||
Research | | $ | 4,162 |
| $ | 5,814 |
Preclinical and Clinical Testing | |
| 18,391 | |
| 22,065 |
Process and Product Development | |
| 2,386 | |
| 2,906 |
Manufacturing Operations | |
| 3,620 | |
| 7,916 |
Total Research and Development Expense | | $ | 28,559 | | $ | 38,701 |
| | | | | | | |
| |
| Three Months Ended | ||||
| | | June 30, | ||||
Research and Development Expense Category | |
| 2020 |
| 2019 | ||
Research |
|
| $ | — |
| $ | 4,162 |
Preclinical and clinical testing | | | | 16,349 | | | 18,391 |
Process and product development | | | | 1,349 | | | 2,386 |
Manufacturing operations | | | | 5,223 | | | 3,620 |
Total research and development expense | | | $ | 22,921 | | $ | 28,559 |
Research
Research includes expenses primarily associated with activities to identify and evaluate new targets and to develop and evaluate new antibodies, linkers, and cytotoxic agents for our products and in support of our collaborators. Such expenses primarily include personnel, contract services, facility expenses, and lablaboratory supplies. ResearchThere were no research expenses for the three months ended June 30, 2019 decreased $1.7 million compared to the three months ended June 30, 2018, principally due to a decrease in personnel expenses driven by adjustments made in the current period to bonus and stock compensation expense2020 as a result of the restructuring of the business.business at the end of the second quarter of 2019.
Preclinical and Clinical Testing
Preclinical and clinical testing includes expenses related to preclinical testing of our own and, in certain instances, our collaborators’ product candidates, regulatory activities, and the cost of our own clinical trials. Such expenses include personnel, patient enrollment at our clinical testing sites, consultant fees, contract services, and facility expenses. Preclinical and clinical testing expenses for the three months ended June 30, 2019 decreased $3.7 million to $18.4 million compared to $22.1 million for the three months ended June 30, 2018. This decrease is primarily the result of lower clinical trial costs principally driven by greater FORWARD I activity in the prior period and lower personnel expenses driven by adjustments made in the current period to bonus and stock compensation expense as a result of the restructuring of the business. Partially offsetting these decreases, contract services increased due to greater activity related to our mirvetuximab soravtansine program in the current period.
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months ended June 30, 2020 decreased $2.1 million to $16.3 million compared to $18.4 million for the three months ended June 30, 2019. This decrease is primarily the result of lower personnel, administrative, laboratory, and allocated facility expenses resulting from the restructuring of the business, a decrease in contract services driven by preclinical development of IMGC936 in the prior period, and lower costs incurred in the current period related to our FORWARD I and FORWARD II studies. Partially offsetting these decreases, clinical trial costs increased driven by costs incurred related to advancing the MIRASOL, SORAYA, and IMGN632 combination therapy studies.
Process and Product Development
Process and product development expenses include costs for development of clinical and commercial manufacturing processes for our own and collaborator compounds. Such expenses include the costs of personnel, contract services, laboratory supplies, and facility expenses. For the three months ended June 30, 2019,2020, total process and product development expenses decreased $520,000$1.0 million compared to the three months ended June 30, 2018.2019. This decrease is principally due to a higher credit recorded against IMGN779decrease in personnel expenses, laboratory supplies, and IMGN632 FTE development costs inallocated facility expenses as a result of the current period compared torestructuring of the prior period resulting from cost-sharing with Jazz and lower facility expenses.business.
Manufacturing Operations
Manufacturing operations expense includes costs to manufacture or have manufactured preclinical and clinical materials manufactured for our own and our collaborator’s product candidates and quality control and quality assurance activities, and costs to support the operation and maintenance of our drug substance manufacturing facility, which we ramped-down in 2018 and decommissioned in February 2019.activities. Such expenses include personnel, raw materials for our and our collaborators’ preclinical studies and clinical trials, non-pivotal and pivotal development costs with contract manufacturing organizations, manufacturing supplies, and facilitiesallocated facility expense. For the three months ended June 30, 2019,2020, manufacturing operations expense decreased $4.3increased $1.6 million to $3.6$5.2 million compared to $7.9$3.6 million in the same period last year. This decreaseincrease is principally the result of greater cytotoxic costs in the current period to support advancement of our preclinical products, partially offset by lower personnel and facility-related expenses including amortization of leasehold improvements, resulting from the shut-downrestructuring of our manufacturing facility in late 2018.the business.
General and Administrative Expenses
General and administrative expenses for the three months ended June 30, 20192020 increased $48,000$1.1 million compared to the same period last year.year due primarily to a higher allocation of facility-related expenses for excess laboratory and office space and an increase in professional services, partially offset by a decrease in personnel and administrative expenses.
Restructuring Charges
2019 Corporate Restructuring
On June 26, 2019, the Board of Directors approved a plan to restructure the business to focus resources on continued development of mirvetuximab soravtansine and a select portfolio of three earlier-stage product candidates, resulting in a significant reduction of our workforce, by approximately 220 positions, with a majority of these employees separating from the business by mid-July 2019 and most of the remaining affected employees transitioning over varying periods of time of up to 12 months. Communication of the plan to the affected employees was substantially completed on June 27, 2019.
As a result of the workforce reduction, we recorded a charge of $16.0 million for severance related to a pre-existing plan in June 2019, which has been subsequently reduced to $15.3 million due to minor adjustments to the three months ended June 30, 2019.plan. The related cash payments will bewere substantially paid out by June 30, 2020. In addition, a charge of $3.7$4.0 million is expected to bewas recorded for incremental retention benefits in the same time period, of which approximately $400,000$0.8 million was recorded during the three months ended June 30, 2019.2020.
In additionCharge Related to the termination benefits and other related charges, we will seekUnoccupied Office Space
We have sought to sub-lease the majority10,281 square feet of the laboratory andunoccupied office space at 830 Winter Street in Waltham, Massachusetts and dispose of excess equipment. In performing the impairment test, we recorded a charge of $2.5 million to write down the equipment to fair value, however, we determined the right-to-use asset related to the leasethat was recoverable, therefore no impairment was recorded.
In February 2018, following an in-depth review of manufacturing and quality operations, the Board of Directors authorized management to implement a new operating model that will rely on external manufacturing and quality testing for drug substance and drug product for our development programs. The implementation of this new operating model led to the ramp-down of manufacturing and quality activities at the Norwood, Massachusetts facility by the end of 2018, with a full decommissioning of the facilityleased in February 2019. Implementation of the new operating model resulted in the separation of 22 employees. Communication of the plan to the affected employees was substantially completed on February 8, 2018.
In connection with the implementation of the new operating model, we recorded a charge of $1.2 million for severance related to a pre-existing plan in the first quarter of 2018. Additional expense was recorded for incremental retention benefits over the remaining service period of the related employees, which totaled $686,000 for2016. During the three months ended June 30, 2018, all of which was paid out by the end of 2018. Cash payments2019, we recorded a $559,000 impairment charge related to severance were substantially paid out bythis lease, which represented the endremaining balance of the second quarterright to use asset as the likelihood of 2019.finding a sub-lessor had diminished significantly as the lease approached termination.
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Investment Income, net
Investment income for the three months ended June 30, 2020 and 2019 was $62,000 and 2018 was $1.3 million, and $814,000, respectively. The increasedecrease in the current period is due to a greatermarginally lower average cash balance driven largely by $162.5 millionand a significant decrease in interest rates in the current period.
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Non-Cash Interest Expense on Liability Related to Sale of Future Royalty
In 2015, IRH purchased our right to receive 100% of the royalty payments on commercial sales of Kadcyla arising under our development and commercialization license with Genentech, until IRH has received aggregate royalties equalsubject to $235 million or $260 million, depending on when the aggregate royalties received by IRH reach a specified milestone. Once the applicable threshold was met, if ever, the Company would thereafter have received 85% and IRH would have received 15% of the Kadcyla royalties for the remaining royalty term.residual cap. In January 2019, OMERS purchased IRH’s right to the royalties the Company previously sold as described above. As described in Note E, “Liability Related to Sale of Future Royalties,” to our Consolidated Financial Statements,consolidated financial statements included in this report, this royalty sale transaction has been recorded as a liability that amortizes over the estimated royalty payment period as Kadcyla royalties are remitted directly to the purchaser. During the three months ended June 30, 20192020 and 2018,2019, we recorded $3.8$6.1 million and $2.6$3.8 million, respectively, of non-cash interest expense which includes amortization of deferred financing costs. The increase in 2020 compared to 2019 is a result of an increase in royalty payments driven by an increase in net sales of Kadcyla, as well as a greater effective interest rate driven by greater projected royalty payments, due to market expansion of Kadcyla and approval of Kadcyla for a second indication in 2019. We impute interest on the transaction and record interest expense at the effective interest rate, which we currently estimate to be 10.0%20.5%. There are a number of factors that could materially affect the estimated interest rate, in particular, the amount and timing of royalty payments from future net sales of Kadcyla, and we will assess this estimate on a periodic basis. As a result, future interest rates could differ significantly and any such change in interest rate will be adjusted prospectively.
Other Income, (Expense), net
Other income, (expense), net for the three months ended June 30, 2020 and 2019 was $106,000 and 2018 was $167,000, and ($1.1) million, respectively. These amounts wererespectively, consisting of foreign currency exchange gains and losses related to obligations with non-U.S. dollar-based suppliers and Euro cash balances maintained to fulfill those obligations during the respective periods.
Comparison of Six Months ended June 30, 20192020 and 20182019
Revenues
Our total revenues for the six months ended June 30, 2020 and 2019 and 2018 were $24.1$28.3 million and $29.1$24.1 million, respectively. The $5.0$4.2 million decreaseincrease in revenues in the six months ended June 30, 20192020 from the same period in the prior year is attributable to an increase in non-cash royalty revenue, partially offset by a decrease in license and milestone fees, research and development support revenue and clinical materials revenue, partially offset by an increase in royalty revenue,both of which isare discussed further below.
License and milestone feesMilestone Fees
The amount of license and milestone fees we earn is directly related to the number of our collaborators, the advancement of product candidates covered by the agreements with our collaborators, and the overall success in the clinical trials of these product candidates. As such, the amount of license and milestone fees may vary significantly from quarter to quarter and year to year. License and milestone fee revenue was $5.2$1.2 million and $12.9$5.2 million for the six months ended June 30, 2020 and 2019, and 2018, respectively. Included in license and milestone fees forDuring the six months ended June 30, 2019 is a $5 million regulatory milestone achieved under ourcurrent quarter, Takeda issued official notification terminating its license agreement with Genentech, a member of the Roche Group. Includedeffective in license and milestone fees for the prior period is $10.9 million of previously deferred license revenue earned upon the expiration of the right to execute a license or extend the research term specified under the right-to-test agreement with Takeda and a $500,000 payment received in January 2018 related to the completed technology transfer of IMGN529 to Debiopharm. In May 2018, Novartis terminated one of its six development and commercialization licenses.August 2020. As a result, wethe Company recorded the remaining $978,000$870,000 balance of the upfront payment that had been allocated to the right to future performance obligationstechnological improvements under this license as revenue, which is included in license and milestone fees for the six months ended June 30, 2018.2020. Included in license and milestone fees for the six months ended June 30, 2019 is a $5.0 million regulatory milestone achieved under our license agreement with Genentech, a member of the Roche Group.
Non-cash Royalty revenueRevenue Related to the Sale of Future Royalties
Kadcyla is an ADC marketed product resulting from one of our development and commercialization licenses with Roche, through its Genentech unit. We receive royalty reports and payments related to sales of Kadcyla from Roche one quarter in arrears. In accordance with ASC 606, however, we record an estimate of the amount of royalties earned on
29
Kadcyla sales within the period. Consistent with thisour revenue recognition policy we recorded $18.9$27.1 million and $14.4$18.9 million of non-cash royalties on net sales of Kadcyla for the six-month periods ended June 30, 2020 and 2019, respectively. The increase in 2020 compared to 2019 is a result of an increase in royalty payments driven by an increase in net sales of Kadcyla, due to market expansion of Kadcyla and 2018, respectively.approval of Kadcyla for a second indication in 2019. Kadcyla sales occurring after January 1, 2015 are covered by a royalty purchase agreement whereby the associated cash was remitted to Immunity Royalty Holdings, L.P., subject to a residual cap. In January 2019, we sold our residual rights to receive royalty payments on commercial sales of Kadcyla to OMERS, the defined benefit pension plan for municipal employees in the Province of Ontario, Canada, for a net payment of $65.2 million (amount is net of $1.5 million of contingent broker fees). Simultaneously, OMERS purchased IRH’s right to the royalties the Company previously sold as described above, thereby obtaining the rights to 100% of the royalties received from that date on.agreement. See further details regarding the royalty obligation in Note E, “Liability Related to Sale of the Consolidated Financial Statements.
Research and development support revenue
The amount of research and development support revenue we earn is directly relatedFuture Royalties,” to requests we receive from collaborators for research and development work under our agreements with them. As such, the amount of these fees may vary widely from quarter to quarter and year to year. Research and development support revenue was $68,000 for the six months ended June 30, 2019 compared with $771,000 for the six months ended June 30, 2018.
Clinical materials revenue
Clinical materials revenue was $1.0 million for the six months ended June 30, 2018. We decommissioned our manufacturing facilityconsolidated financial statements included in 2018 and no longer produce preclinical and clinical materials on behalf of our collaborators.this report.
Research and Development Expenses
Our research and development expenses relate to (i) research to evaluate new targets and to develop and evaluate new antibodies, linkers, and cytotoxic agents, (ii) preclinical testing of our own and, in certain instances, our collaborators’ product candidates, and the cost of our own clinical trials, (iii) development related to clinical and commercial manufacturing processes, and (iv) external manufacturing operations, and prior to 2019, internal manufacturing operations, which also included raw materials.
Research and development expense for the six months ended June 30, 20192020 decreased $16.0$17.2 million to $67.5$50.3 million from $83.5$67.5 million for the six months ended June 30, 2018,2019, due primarily to: (i) decreased clinical trial costs primarily related to the FORWARD I Phase 3 study; (ii) lower facility-related costs, including depreciation expense, anddecreases in personnel expenses, related toallocated facility expenses, lab supplies, and third-party research expenses resulting from the shut-down of our Norwood facility in 2018; (iii) decreased bonus and stock compensation expense as a result of the recent restructuring of the business; and (iv) a higher credit recorded against IMGN779, IMGN632, and IMGC936 development costsbusiness at the end of the second quarter of 2019. Partially offsetting these decreases, clinical trial expenses increased in the current period as compared to the priorsame period resulting from cost-sharing with Jazzin 2019 driven largely by costs incurred related to advancing the MIRASOL, SORAYA, and MacroGenics pursuant to our respective collaboration agreements.IMGN632 combination therapy studies. We do not track our research and development costs by project. Since we use our research and development resources across multiple research and development projects, we manage our
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research and development expenses within each of the categories listed in the following table and described in more detail below (in thousands):
| | | | | | |
| | Six Months Ended June 30, | ||||
Research and Development Expense |
| 2019 |
| 2018 | ||
Research |
| $ | 10,500 |
| $ | 11,877 |
Preclinical and Clinical Testing | |
| 39,490 | |
| 46,865 |
Process and Product Development | |
| 5,312 | |
| 5,665 |
Manufacturing Operations | |
| 12,150 | |
| 19,125 |
Total Research and Development Expense |
| $ | 67,452 |
| $ | 83,532 |
| | | | | | |
| | Six Months Ended June 30, | ||||
Research and Development Expense |
| 2020 |
| 2019 | ||
Research |
| $ | — |
| $ | 10,500 |
Preclinical and Clinical Testing | |
| 36,604 | |
| 39,490 |
Process and Product Development | |
| 2,477 | |
| 5,312 |
Manufacturing Operations | |
| 11,248 | |
| 12,150 |
Total Research and Development Expense |
| $ | 50,329 |
| $ | 67,452 |
Research
Research includes expenses primarily associated with activities to identify and evaluate new targets and to develop and evaluate new antibodies, linkers, and cytotoxic agents for our products and in support of our collaborators. Such expenses primarily include personnel, contract services, facility expenses, and lab supplies. ResearchThere were no research expenses for the six months ended June 30, 2019 decreased $1.4 million compared to the six months ended June 30, 2018. This decrease is principally due to a decrease in personnel expenses driven by adjustments made in the current period to bonus and stock compensation expense2020 as a result of the restructuring of the business in Juneat the end of the second quarter of 2019.
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Preclinical and Clinical Testing
Preclinical and clinical testing includes expenses related to preclinical testing of our own and, in certain instances, our collaborators’ product candidates, regulatory activities, and the cost of our own clinical trials. Such expenses include personnel, patient enrollment at our clinical testing sites, consultant fees, contract services, and facility expenses. Preclinical and clinical testing expenses for the six months ended June 30, 20192020 decreased $7.4$2.9 million to $39.5$36.6 million compared to $46.9$39.5 million for the six months ended June 30, 2018.2019. This decrease is primarily the result of lower clinical trial costs principallypersonnel, administrative, laboratory, and allocated facility expenses resulting from the restructuring of the business, a decrease in contract services driven by greater FORWARD I activitypreclinical development of IMGC936 in the prior period, and a higher credit recorded against IMGN779, IMGN632, and IMGC936 developmentlower costs incurred in the current period as compared to the prior2019 period resulting from cost-sharing with Jazzrelated to our FORWARD I, FORWARD II, and MacroGenics.IMGN779 studies. Partially offsetting these decreases, contract servicesclinical trial costs increased due to substantially greater activitydriven by costs incurred related to our mirvetuximab soravtansineadvancing the MIRASOL, SORAYA, and IMGC936 programsIMGN632 combination therapy studies, and a lower credit was recorded in the current period.period pursuant to our cost-sharing agreement with Jazz due to the discontinuation of the IMGN779 program in connection with the 2019 restructuring.
Process and Product Development
Process and product development expenses include costs for development of clinical and commercial manufacturing processes for our own and collaborator compounds. Such expenses include the costs of personnel, contract services, and facility expenses. For the six months ended June 30, 2019,2020, total process and product development expenses decreased $353,000$2.8 million compared to the six months ended June 30, 2018.2019. This decrease is principally due to a higherdecrease in personnel expenses, laboratory supplies, and allocated facility expenses as a result of the restructuring of the business, partially offset by a lower credit recorded against IMGN779, IMGN632, and IMGC936 development costs in the current period comparedpursuant to our cost-sharing agreement with Jazz due to the prior period resulting from cost-sharingdiscontinuation of the IMGN779 program in connection with Jazz and MacroGenics.the 2019 restructuring.
Manufacturing Operations
Manufacturing operations expense includes costs to manufacture preclinical and clinical materials for our own and our collaborator’s product candidates, quality control and quality assurance activities, and costs to support the operation and maintenance of our drug substance manufacturing facility, which we ramped-down in 2018 and decommissioned in February 2019. Such expenses include personnel, raw materials for our and our collaborators’ preclinical studies and clinical trials, development costs with contract manufacturing organizations, manufacturing supplies, and facilities expense. For the six months ended June 30, 2019,2020, manufacturing operations expense decreased $7.0$0.9 million to $12.1$11.2 million compared to $19.1$12.1 million in the same period last year. This decrease is principally the result of lower personnel and facility-related expenses including amortization of leasehold improvements, resulting from the shut-down of our manufacturing facility in late 2018.February 2019 and the restructuring of the business at the end of the second quarter of 2019, partially offset by a lower credit recorded in the current period pursuant to our cost-sharing agreement with Jazz due to the discontinuation of the IMGN779 program in connection with the 2019 restructuring.
General and Administrative Expenses
General and administrative expenses for the six months ended June 30, 2019 increased $831,0002020 decreased $0.8 million compared to the same period last year. This increase is principallyyear due primarily to a decrease in personnel and administrative expenses, as well as a gain on sale of laboratory equipment, resulting from the prior year restructuring, partially offset by a higher allocation of facility-related expenses for excess laboratory and office space and an increase in personnel expenses driven by increased headcount and greater stock compensation expense, partially offset by lower bonus expense resulting from adjustments made related to the restructuring of the business.professional services.
Restructuring Charges
On June 26, 2019 the Board of Directors approved a plan to restructure the business to focus resources on continued development of mirvetuximab soravtansine and a select portfolio of three earlier-stage product candidates, resulting in a reduction of our workforce by approximately 220 positions, with a majority of these employees separating from the business by mid-July 2019 and the remaining affected employees transitioning over varying periods of time of up to 12 months. Communication of the plan to the affected employees was substantially completed on June 27, 2019.Corporate Restructuring
As a result of the workforce reduction approved by our Board of Directors on June 26, 2019 discussed above, we recorded a charge of $16.0 million for severance related to a pre-existing plan in June 2019, which has been subsequently reduced to $15.3 million due to minor adjustments to the six months ended June 30, 2019.plan. The related cash payments will bewere substantially paid out by June 30, 2020. In addition, a charge of $3.7$4.0 million is expected to bewas recorded for incremental retention benefits in the same time period, of which approximately $400,000$1.6 million was recorded during the six months ended June 30, 2019.
In addition to the termination benefits and other related charges, we will seek to sub-lease the majority of the laboratory and office space at 830 Winter Street in Waltham, Massachusetts and dispose of excess equipment. In performing the impairment test, we recorded a charge of $2.5 million to write down the equipment to fair value, however, we determined the right-to-use asset related to the lease was recoverable, therefore, no impairment was recorded.2020.
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As a result of a workforce reduction in September 2016, the Company began seekingCharge Related to Unoccupied Office Space
We have sought to sub-lease 10,281 square feet of unoccupied office space at 930 Winter Street in Waltham, Massachusetts that was leased in 2016. During the six months ended June 30, 2019, the Companywe recorded a $559,000 of impairment chargescharge related to this lease, which representsrepresented the remaining balance of the right to use asset as the likelihood of finding a sub-lessor hashad diminished significantly as the lease approachesapproached termination.
In February 2018, following an in-depth review of manufacturing and quality operations, the Board of Directors authorized management to implement a new operating model that will rely on external manufacturing and quality testing for drug substance and drug product for our development programs. The implementation of this new operating model led to the ramp-down of manufacturing and quality activities at the Norwood, Massachusetts facility by the end of 2018, with a full decommissioning of the facility in February 2019. Implementation of the new operating model resulted in the separation of 22 employees. Communication of the plan to the affected employees was substantially completed on February 8, 2018.
In connection with the implementation of the new operating model, we recorded a charge of $1.2 million for severance related to a pre-existing plan in the first quarter of 2018. Additional expense was recorded for incremental retention benefits over the remaining service period of the related employees, which totaled $1.1 million for the six months ended June 30, 2018, all of which was paid out by the end of 2018. Additionally, certain options held by the employees to be separated were modified to extend the exercise period, resulting in a stock compensation charge of $157,000 in the first quarter of 2018. Cash payments related to severance were substantially paid out by the end of the second quarter of 2019.
Investment Income, net
Investment income for the six months ended June 30, 2020 and 2019 was $708,000 and 2018 was $2.7 million and $1.5 million, respectively. The increasedecrease in the current period is due to a greatermarginally lower average cash balance driven largely by $162.5 million of net proceeds generated fromin the current period and a public offering of common stocksignificant decrease in June 2018 and $65.2 million of net proceeds generated from the sale of our residual rights to Kadcyla royalty payments in January 2019.interest rates.
Non-Cash Interest Expense on Liability Related to Sale of Future Royalty
In 2015, IRH purchased our right to receive 100% of the royalty payments on commercial sales of Kadcyla arising under our development and commercialization license with Genentech, until IRH has received aggregate royalties equalsubject to $235 million or $260 million, depending on when the aggregate royalties received by IRH reach a specified milestone. Once the applicable threshold was met, if ever, the Company would thereafter have received 85% and IRH would have received 15% of the Kadcyla royalties for the remaining royalty term.residual cap. In January 2019, OMERS purchased IRH’s right to the royalties the Company previously sold as described above. As described in Note E, “Liability Related to Sale of Future Royalties,” to our Consolidated Financial Statements,consolidated financial statements included in this report, this royalty sale transaction has been recorded as a liability that amortizes over the estimated royalty payment period as Kadcyla royalties are remitted directly to the purchaser. During the six months ended June 30, 20192020 and 2018,2019, we recorded $7.2$11.8 million and $5.7$7.2 million, respectively, of non-cash interest expense which includes amortization of deferred financing costs. The increase in 2020 compared to 2019 is a result of an increase in royalty payments driven by an increase in net sales of Kadcyla, as well as a greater effective interest rate driven by greater projected royalty payments, due to market expansion of Kadcyla and approval of Kadcyla for a second indication in 2019. We impute interest on the transaction and record interest expense at the effective interest rate, which we currently estimate to be 10.0%20.5%. There are a number of factors that could materially affect the estimated interest rate, in particular, the amount and timing of royalty payments from future net sales of Kadcyla, and we will assess this estimate on a periodic basis. As a result, future interest rates could differ significantly and any such change in interest rate will be adjusted prospectively.
Other Income (Expense), net
Other income (expense), net for the six months ended June 30, 2020 and 2019 was $(92,000) and 2018 was $96,000, and ($515,000), respectively. These amounts primarily consisted of gains on sale of assets andwere substantially foreign currency exchange gains andor losses related to obligations with non-U.S. dollar-based suppliers and Euro cash balances maintained to fulfill those obligations during the respective periods.
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LIQUIDITY AND CAPITAL RESOURCES
(amounts inThe tables inbelow summarize our cash and cash equivalents, working capital, and shareholders’ deficit as of June 30, 2020 and December 31, 2019, and cash flow activities for the six months ended June 30, 2020 and 2019 as follows (in thousands):
| | | | | | | |
| | As of | | ||||
| | June 30, | | December 31, | | ||
|
| 2019 |
| 2018 |
| ||
Cash and cash equivalents |
| $ | 239,825 |
| $ | 262,252 |
|
Working capital | |
| 184,762 | |
| 208,121 | |
Shareholders’ (deficit) equity | |
| (68,174) | |
| 10,972 | |
| | | | | | | |
| | As of | | ||||
| | June 30, | | December 31, | | ||
|
| 2020 |
| 2019 |
| ||
Cash and cash equivalents |
| $ | 219,506 |
| $ | 176,225 |
|
Working capital | |
| 150,492 | |
| 131,488 | |
Shareholders’ deficit | |
| (24,523) | |
| (76,121) | |
| | | | | | |
| | | | | | |
| | Six Months Ended June 30, | ||||
|
| 2019 |
| 2018 | ||
Cash used for operating activities |
| $ | (20,810) |
| $ | (85,281) |
Cash used for investing activities | |
| (2,355) | |
| (2,127) |
Cash provided by financing activities | |
| 738 | |
| 165,359 |
| | | | | | | |
| | | | | | | |
| | Six Months Ended June 30, | | ||||
|
| 2020 |
| 2019 |
| ||
Cash used for operating activities |
| $ | (56,508) |
| $ | (20,810) | |
Cash provided by (used for) investing activities | |
| 1,382 | |
| (2,355) | |
Cash provided by financing activities | |
| 98,407 | |
| 738 | |
Cash Flows
We require cash to fund our operating expenses, including the advancement of our own clinical programs, and to make capital expenditures. Historically, we have funded our cash requirements primarily through equity and convertible
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debt financings in public markets and payments from our collaborators, including license fees, milestones, research funding, and royalties. We have also monetized our rights to receive royalties on Kadcyla for up-front consideration. As of June 30, 2019,2020, we had $239.8$219.5 million in cash and cash equivalents. Net cash used for operations was $20.8$56.5 million and $85.3$20.8 million for the six months ended June 30, 20192020 and 2018,2019, respectively. The principal use of cash for operating activities for both periods presented was to fund our net loss, adjusted for non-cash items, with the current2019 period benefiting from $65.2 million of net proceeds from the sale of our residual rights to royalty payments on net sales of Kadcyla.
Net cash used forprovided by (used for) investing activities was $2.4$1.4 million and $2.1$(2.4) million for the six months ended June 30, 2020 and 2019, and 2018, respectively, and represents cashrespectively. During the current period, as a result of the restructuring at the end of the second quarter of 2019, we sold excess equipment generating proceeds of $1.4 million. Cash outflows for capital expenditures in the prior period consisted primarily for the purchase of new equipment.laboratory equipment and dedicated equipment at third-party manufacturing vendors.
Net cash provided by financing activities was $738,000$98.4 million and $165.4 million$738,000 for the six months ended June 30, 20192020 and 2018,2019, respectively. In June 2018,January 2020, pursuant to a public offering, we issued and sold 15.824.5 million shares of our common stock, resulting in net proceeds of $162.5$97.7 million. Also included in the six months ended June 30, 2020 and 2019 is $664,000 and 2018 is $738,000, and $2.8 million, respectively, of proceeds generated from the exercise of approximately 379,000208,000 and 568,000379,000 stock options, respectively.respectively, including shares purchased through our ESPP plan.
On June 26, 2019, the Board of Directors approved a plan to restructure the business to focus resources on continued development of mirvetuximab soravtansine and a select portfolio of three earlier-stage product candidates, resulting in a reduction of workforce by approximately 220 positions. We anticipate that our current capital resources and expense reductions resulting from these operational changes will enable us to meet our operational expenses and capital expenditures for more than twelve months after the date of this report. We may raise additional funds through equity, debt, and debtother financings or generate revenues from collaborators through a combination of upfront license payments, milestone payments, royalty payments, and research funding. We cannot provide assurance that such collaborative agreement fundingwe will in fact, be received.able to obtain additional debt, equity, or other financing or generate revenues from collaborators on terms acceptable to the Company or at all. Should we or our partners not meet some or all of the terms and conditions of our various collaboration agreements or if we are not successful in securing future collaboration agreements, we may elect or be required to secure alternative financing arrangements, and/or defer or limit some or all of our research, development and/or clinical projects.
Contractual Obligations
In 2018, the Company executed a commercial agreement with one of its manufacturers for future production of antibody through calendar 2025. In May 2019, the agreement was amended to reduce the number of committed antibody batches for an agreed-upon exit fee, which was determined to be probable and recorded as research and development expense in the first quarter of 2019. As ofAfter further negotiations, our noncancelable commitment for future production is approximately €11 million at June 30, 2019, the Company’s noncancelable commitment ranges from €2.3 to €15.1 million2020.
We lease approximately 120,000 square feet of laboratory and office space in a building located at 830 Winter Street, Waltham, Massachusetts, pursuant to contingent termsa lease with an initial term that expires on March 31, 2026. In January, March, and April 2020, we executed three agreements to sublease a total of 47,160 square feet of said space through March 2026. Two of the agreement, includingthree sublease agreements include an early termination option after certain periods of time for an agreed-upon fee. Assuming these early termination options are not exercised, we will receive approximately $13 million in minimum rental payments over the manufacturer’s ability to fillremaining term of the Company’s unused capacity with productionsubleases. The sublessees will also be responsible for other customers.
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Tabletheir proportionate share of Contentsvariable operating expenses and real estate taxes.
There have been no other material changes to our contractual obligations during the current period from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.2019 filed with the SEC on March 11, 2020.
Recent Accounting Pronouncements
The information set forth under Note B, to the consolidated financial statements under the caption “Summary of Significant Accounting Policies”Policies,” to our consolidated financial statements included in this report under the caption “Recently Adopted Accounting Pronouncements” is incorporated herein by reference.
Third-Party Trademarks
Avastin, Herceptin, Kadcyla and Keytruda areis a registered trademarkstrademark of their respective owners.Genentech, Inc. Probody is a trademark of CytomX.
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OFF-BALANCE SHEET ARRANGEMENTS
None.
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk
Our market risks, and the ways we manage them, are summarized in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the year ended December 31, 2018.2019 filed with the SEC on March 11, 2020. Since then there have been no material changes to our market risks or to our management of such risks.
ITEM 4. Controls and Procedures
(a) | Disclosure Controls and Procedures |
Our management, with the participation of our principal executive and principal financial officer,officers, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our principal executive and principal financial officer hasofficers have concluded that, as of the end of such period, our disclosure controls and procedures were adequate and effective.
(b) | Changes in Internal Controls Over Financial Reporting |
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than an upgrade to our enterprise resource planning system.reporting.
PART II. OTHER INFORMATION
ITEM 1A. Risk Factors
YouIn addition to the other information set forth in this report, you should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition, or future results set forth under Item 1A. (Risk Factors)“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018.2019 filed with the SEC on March 11, 2020. There have been no material changes from the factors disclosed in our 20182019 Annual Report on Form 10-K although weand our Quarterly Report on Form 10-Q filed on May 5, 2020, other than the update to the risk factor below regarding the COVID-19 pandemic. We may, however, disclose changes to such risk factors, or disclose additional risk factors from time to time in our future filings with the SecuritiesSEC.
A pandemic, epidemic, or outbreak of an infectious disease, such as the COVID-19 pandemic, may materially and Exchange Commission.adversely affect our business and our financial results.
The spread of COVID-19 has affected segments of the global economy and may affect our operations, including the potential interruption of our clinical trial activities and our supply chain. The current outbreak of COVID-19 has spread worldwide, including countries where we are currently conducting our clinical trials, including our SORAYA and MIRASOL trials. The COVID-19 pandemic is still evolving, and to date has led to the implementation of various responses, including government-imposed quarantines, travel restrictions and other public health safety measures, as well as reported adverse impacts on healthcare resources, facilities, and providers across the United States, and in other countries worldwide. The continued impact of COVID-19 may result in a period of business disruption, including delays in our clinical trials or delays or disruptions in our supply chain.
The continued impact of COVID-19 globally could adversely affect our clinical trial operations in the United States and elsewhere, including our ability to recruit and retain patients, principal investigators, and site staff who, as healthcare providers, may have heightened exposure to COVID-19. For example, COVID-19 has slowed site activation and patient enrollment for SORAYA, which we believe will result in a limited delay of six- to eight-weeks in the availability of top-line data from this trial from mid-2021 to the third quarter of 2021. Further, the COVID-19 pandemic may further delay enrollment in our SORAYA trial and delay enrollment in our MIRASOL trial due to prioritization of
30
hospital resources toward the pandemic, restrictions on travel, and some patients may be unwilling to enroll in our trials or be unable to comply with clinical trial protocols if quarantines or travel restrictions impede patient movement or interrupt healthcare services, which would delay our ability to conduct clinical trials or release clinical trial results. In addition, there could be a potential effect of COVID-19 to the business at FDA or other health authorities, which could result in delays of reviews and approvals, including with respect to our product candidates. COVID-19 may also affect employees of third-party contract research organizations located in affected geographies that we rely upon to carry out our clinical trials. Although we entered the pandemic with ample supply of our drug candidates and we believe we have sufficient inventory on hand for all of our ongoing mirvetuximab monotherapy and combination trials, IMGN632 expansion studies, and activities to support the planned Phase 1 study for IMGC936, the continuation of the COVID-19 pandemic, or the spread of another infectious disease, could also negatively affect the operations at our third-party manufacturers, which could result in delays or disruptions in the supply of our product candidates if we need additional materials. Additionally, although our supply partners have taken prospective measures that we believe will ensure our currently activated trial sites have sufficient safety stock of our drug candidates to weather disruptions in transportation or supply, interruption in the manufacture and/or global shipping affecting the transport of clinical trial materials, such as patient samples, product candidates, and other supplies used in our clinical trials may negatively affect our trials.
In addition, in response to the pandemic and in accordance with direction from state and local government authorities, we have taken temporary precautionary measures intended to help minimize the risk of the virus to our employees, including temporarily requiring most employees to work remotely (which in turn increases our threat to cyber security, data accessibility, and communication matters), and suspending all non-essential travel worldwide for our employees. In addition, industry events and in-person work-related meetings have been cancelled, the continuation of which could negatively affect our business.
The trading prices for our common stock and other biotechnology companies have also been highly volatile as a result of the COVID-19 pandemic. We, therefore, may face difficulties raising capital through sales of our common stock or equity linked to our common stock or such sales may be on unfavorable terms or unavailable.
We cannot presently predict the scope and severity of any additional potential business shutdowns or disruptions as a result of the COVID-19 pandemic. If we or any of the third parties with whom we engage, however, were to experience further shutdowns or other business disruptions, our ability to conduct our business in the manner and on the timelines presently planned could be materially and negatively affected, which could have a material adverse impact on our business and our results of operation and financial condition.
ITEM 5. Other Information
None
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ITEM 6. Exhibits
Exhibit No. |
| | Description | |
| | | ||
3.1(a) | | | ||
3.1(b) | | | ||
3.1(c) | | | ||
10.1 | ± | | ||
10.2 | ± | | ||
10.3 | ± | | Employment Offer Letter dated June 30, 2020 between the Registrant and Susan Altschuller, Ph.D. | |
10.4 | ± | | ||
10.5 | ± | | ||
31.1 | | | ||
31.2 | | | ||
32 | † | | ||
101 | | | Financial statements from the quarterly report on Form 10-Q of ImmunoGen, Inc. for the quarter ended June 30, | |
104 | | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) | |
| | | |
† | Furnished, not filed. |
± | Exhibit is a management contract or compensatory plan, contract or arrangement required to be filed as an exhibit to this Quarterly Report on Form 10-Q. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | ImmunoGen, Inc. | |
| | | |
Date: August | | By: | /s/ Mark J. Enyedy |
| | | Mark J. Enyedy |
| | | President and Chief Executive Officer (Principal Executive Officer) |
| | | |
Date: August 5, 2020 | | By: | /s/ Susan Altschuller, Ph.D. |
| | | Susan Altschuller, Ph.D. |
| | | Senior Vice President and Chief Financial Officer |
| | | |
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