UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended JuneSeptember 30, 2021
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________________ to __________________
Commission File Number: 001-39344
Fusion Pharmaceuticals Inc.
(Exact Name of Registrant as Specified in its Charter)
Canada | Not Applicable |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer |
270 Longwood Rd., S. Hamilton, ON, Canada | L8P 0A6 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (289) 799-0891
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common shares, no par value per share |
| FUSN |
| The Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| ☐ |
| Accelerated filer |
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Non-accelerated filer |
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| Smaller reporting company |
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Emerging growth company |
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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 ☒
As of August 3,November 2, 2021, the registrant had 43,019,62043,066,219 common shares, with no par value per share, outstanding.
Table of Contents
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| Page |
PART I. | 1 | |
Item 1. | 1 | |
| 1 | |
| Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited) | 2 |
| 3 | |
| 5 | |
| Notes to (Unaudited) Condensed Consolidated Financial Statements | 6 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 34 |
Item 3. |
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Item 4. |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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i
Summary of Material Risks Associated with Our Business
Our ability to implement our business strategy is subject to numerous risks and uncertainties. This summary does not include all material risks associated with our business and is not a conclusive ranking or prioritization of our risk factors. Further, placement of certain of these risks in the summary section as opposed to others does not constitute guidance that the risk factors included in the summary are the only material risks to consider when considering an investment in our securities. We believe that all risk factors presented in this Quarterly Report on Form 10-Q are important to an understanding of our company and should be given careful consideration. In addition, the summary of company specific risks does not include the appropriate level of detail necessary to fully understand these risks, and the corresponding risk factors that follow provide essential detail and context necessary to fully understand and appreciate these principal risks associated with our business.
These risks include, but are not limited to, the following:
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iii
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
FUSION PHARMACEUTICALS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
|
| June 30, 2021 |
|
| December 31, 2020 |
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||||
Assets |
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Current assets: |
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Cash and cash equivalents |
| $ | 27,615 |
|
| $ | 90,517 |
|
| $ | 38,379 |
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| $ | 90,517 |
|
Accounts receivable |
|
| 121 |
|
|
| — |
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|
| 300 |
|
|
| — |
|
Short-term investments |
|
| 150,904 |
|
|
| 131,882 |
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|
| 154,238 |
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|
| 131,882 |
|
Prepaid expenses and other current assets |
|
| 5,847 |
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|
| 5,340 |
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| 9,423 |
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| 5,340 |
|
Restricted cash |
|
| 669 |
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|
| 425 |
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| 669 |
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| 425 |
|
Total current assets |
|
| 185,156 |
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|
| 228,164 |
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| 203,009 |
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| 228,164 |
|
Property and equipment, net |
|
| 2,659 |
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|
| 1,967 |
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|
| 2,460 |
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|
| 1,967 |
|
Deferred tax assets |
|
| 1,067 |
|
|
| 653 |
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|
| 1,324 |
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|
| 653 |
|
Restricted cash |
|
| 1,222 |
|
|
| 1,466 |
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| 1,222 |
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|
| 1,466 |
|
Long-term investments |
|
| 81,974 |
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| 77,082 |
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| 45,554 |
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| 77,082 |
|
Operating lease right-of-use assets |
|
| 7,224 |
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|
| — |
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| 6,946 |
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| — |
|
Other non-current assets |
|
| 2,854 |
|
|
| 1,344 |
|
|
| 7,788 |
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|
| 1,344 |
|
Total assets |
| $ | 282,156 |
|
| $ | 310,676 |
|
| $ | 268,303 |
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| $ | 310,676 |
|
Liabilities and Shareholders’ Equity |
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Current liabilities: |
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Accounts payable |
| $ | 685 |
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| $ | 3,399 |
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| $ | 3,803 |
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| $ | 3,399 |
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Accrued expenses |
|
| 5,682 |
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| 4,659 |
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| 6,146 |
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| 4,659 |
|
Income taxes payable |
|
| — |
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| 2,799 |
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| — |
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| 2,799 |
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Deferred revenue |
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| 1,733 |
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| 1,000 |
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| 2,287 |
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| 1,000 |
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Operating lease liabilities |
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| 1,265 |
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| — |
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| 1,327 |
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| — |
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Total current liabilities |
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| 9,365 |
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| 11,857 |
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| 13,563 |
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| 11,857 |
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Deferred rent, net of current portion |
|
| — |
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| 11 |
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|
| — |
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| 11 |
|
Income taxes payable, net of current portion |
|
| 295 |
|
|
| 295 |
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|
| 295 |
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| 295 |
|
Deferred revenue, net of current portion |
|
| 2,867 |
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|
| 4,000 |
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|
| 2,167 |
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| 4,000 |
|
Operating lease liabilities, net of current portion |
|
| 6,078 |
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|
| — |
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| 5,783 |
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| — |
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Total liabilities |
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| 18,605 |
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| 16,163 |
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| 21,808 |
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| 16,163 |
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Commitments and contingencies (Note 14) |
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Shareholders’ equity: |
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Common shares, no par value, unlimited shares authorized as of June 30, 2021 and December 31, 2020; 42,621,099 and 41,725,797 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively |
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| — |
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| — |
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Common shares, no par value, unlimited shares authorized as of September 30, 2021 and December 31, 2020; 43,066,219 and 41,725,797 shares issued and outstanding as of September 30, 2021 and December 31, 2020, respectively |
|
| — |
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| — |
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Additional paid-in capital |
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| 420,799 |
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| 407,672 |
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| 423,446 |
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| 407,672 |
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Accumulated other comprehensive income |
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| 337 |
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| 44 |
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| 63 |
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| 44 |
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Accumulated deficit |
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| (157,585 | ) |
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| (113,203 | ) |
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| (177,014 | ) |
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| (113,203 | ) |
Total shareholders’ equity |
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| 263,551 |
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| 294,513 |
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| 246,495 |
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| 294,513 |
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Total liabilities and shareholders’ equity |
| $ | 282,156 |
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| $ | 310,676 |
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| $ | 268,303 |
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| $ | 310,676 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
FUSION PHARMACEUTICALS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except share and per share amounts)
(Unaudited)
|
| Three Months Ended June 30, |
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| Six Months Ended June 30, |
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| Three Months Ended September 30, |
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| Nine Months Ended September 30, |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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Collaboration revenue |
| $ | 521 |
|
| $ | — |
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| $ | 521 |
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| $ | — |
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| $ | 325 |
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| $ | — |
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| $ | 846 |
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| $ | — |
|
Operating expenses: |
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Research and development |
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| 21,146 |
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| 3,325 |
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| 31,862 |
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| 7,702 |
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| 12,684 |
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| 4,529 |
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| 44,546 |
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| 12,231 |
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General and administrative |
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| 6,642 |
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| 3,988 |
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| 13,606 |
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| 8,315 |
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| 7,156 |
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| 5,790 |
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| 20,762 |
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| 14,105 |
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Total operating expenses |
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| 27,788 |
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| 7,313 |
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| 45,468 |
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| 16,017 |
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| 19,840 |
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| 10,319 |
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| 65,308 |
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| 26,336 |
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Loss from operations |
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| (27,267 | ) |
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| (7,313 | ) |
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| (44,947 | ) |
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| (16,017 | ) |
|
| (19,515 | ) |
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| (10,319 | ) |
|
| (64,462 | ) |
|
| (26,336 | ) |
Other income (expense): |
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Change in fair value of preferred share tranche right liability |
|
| — |
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| (31,604 | ) |
|
| — |
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|
| (32,722 | ) |
|
| — |
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|
| — |
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|
| — |
|
|
| (32,722 | ) |
Change in fair value of preferred share warrant liability |
|
| — |
|
|
| (6,065 | ) |
|
| — |
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|
| (6,399 | ) |
|
| — |
|
|
| — |
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|
| — |
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|
| (6,399 | ) |
Interest income (expense), net |
|
| 97 |
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|
| 22 |
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|
| 193 |
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|
| 169 |
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|
| 107 |
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|
| 80 |
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|
| 300 |
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|
| 249 |
|
Refundable investment tax credits |
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| — |
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|
| 52 |
|
|
| — |
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|
| 98 |
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|
| — |
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|
| 41 |
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|
| — |
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|
| 139 |
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Other income (expense), net |
|
| 331 |
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|
| 325 |
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|
| 379 |
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|
| 128 |
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|
| 27 |
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| 20 |
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|
| 406 |
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|
| 148 |
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Total other income (expense), net |
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| 428 |
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| (37,270 | ) |
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| 572 |
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| (38,726 | ) |
|
| 134 |
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|
| 141 |
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|
| 706 |
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|
| (38,585 | ) |
Loss before provision for income taxes |
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| (26,839 | ) |
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| (44,583 | ) |
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| (44,375 | ) |
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| (54,743 | ) | ||||||||||||||||
Income tax provision |
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| (14 | ) |
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| (150 | ) |
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| (7 | ) |
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| (212 | ) | ||||||||||||||||
Loss before (provision) benefit for income taxes |
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| (19,381 | ) |
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| (10,178 | ) |
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| (63,756 | ) |
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| (64,921 | ) | ||||||||||||||||
Income tax (provision) benefit |
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| (48 | ) |
|
| 185 |
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|
| (55 | ) |
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| (27 | ) | ||||||||||||||||
Net loss |
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| (26,853 | ) |
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| (44,733 | ) |
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| (44,382 | ) |
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| (54,955 | ) |
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| (19,429 | ) |
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| (9,993 | ) |
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| (63,811 | ) |
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| (64,948 | ) |
Unrealized gain on investments |
|
| 54 |
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|
| — |
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|
| 293 |
|
|
| — |
| ||||||||||||||||
Unrealized (loss) gain on investments |
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| (274 | ) |
|
| (1 | ) |
|
| 19 |
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| (1 | ) | ||||||||||||||||
Comprehensive loss |
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| (26,799 | ) |
|
| (44,733 | ) |
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| (44,089 | ) |
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| (54,955 | ) |
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| (19,703 | ) |
|
| (9,994 | ) |
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| (63,792 | ) |
|
| (64,949 | ) |
Reconciliation of net loss to net loss attributable to common shareholders: |
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Net loss |
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| (26,853 | ) |
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| (44,733 | ) |
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| (44,382 | ) |
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| (54,955 | ) |
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| (19,429 | ) |
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| (9,993 | ) |
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| (63,811 | ) |
|
| (64,948 | ) |
Dividends paid to preferred shareholders in the form of warrants issued |
|
| — |
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|
| — |
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|
| — |
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|
| (1,382 | ) |
|
| — |
|
|
| — |
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|
| — |
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| �� | (1,382 | ) |
Net loss attributable to common shareholders |
| $ | (26,853 | ) |
| $ | (44,733 | ) |
| $ | (44,382 | ) |
| $ | (56,337 | ) |
| $ | (19,429 | ) |
| $ | (9,993 | ) |
| $ | (63,811 | ) |
| $ | (66,330 | ) |
Net loss per share attributable to common shareholders—basic and diluted |
| $ | (0.63 | ) |
| $ | (18.91 | ) |
| $ | (1.05 | ) |
| $ | (26.23 | ) |
| $ | (0.45 | ) |
| $ | (0.24 | ) |
| $ | (1.50 | ) |
| $ | (4.30 | ) |
Weighted-average common shares outstanding—basic and diluted |
|
| 42,501,321 |
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|
| 2,366,198 |
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|
| 42,145,435 |
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|
| 2,147,876 |
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|
| 43,022,762 |
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|
| 41,682,797 |
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|
| 42,441,091 |
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| 15,422,375 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
FUSION PHARMACEUTICALS INC.
CONDENSED CONSOLIDATED STATEMENTS OF NON-CONTROLLING INTEREST, CONVERTIBLE PREFERRED SHARES
AND SHAREHOLDERS’ EQUITY (DEFICIT)
(In thousands, except share amounts)
(Unaudited)
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| Non-Controlling Interest in Fusion Pharmaceuticals (Ireland) |
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| Class A and B Convertible Preferred Shares |
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| Common Shares |
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| Additional Paid-in |
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| Accumulated |
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| Accumulated Other Comprehensive |
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| Total Shareholders’ Equity |
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| Non-Controlling Interest in Fusion Pharmaceuticals (Ireland) |
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| Class A and B Convertible Preferred Shares |
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| Common Shares |
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| Additional Paid-in |
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| Accumulated |
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| Accumulated Other Comprehensive |
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| Total Shareholders’ Equity |
| ||||||||||||||||||||||||||||||
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| Limited |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
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| Capital |
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| Deficit |
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| Income |
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| (Deficit) |
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| Limited |
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| Shares |
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| Amount |
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|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
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| Income (Loss) |
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| (Deficit) |
| ||||||||||||||||||
Balances at December 31, 2020 |
| $ | — |
|
|
| — |
|
| $ | — |
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|
|
| 41,725,797 |
|
| $ | — |
|
| $ | 407,672 |
|
| $ | (113,203 | ) |
| $ | 44 |
|
| $ | 294,513 |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
|
| 41,725,797 |
|
| $ | — |
|
| $ | 407,672 |
|
| $ | (113,203 | ) |
| $ | 44 |
|
| $ | 294,513 |
|
Issuance of common shares upon exercise of stock options |
|
| — |
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|
| — |
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|
| — |
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|
|
| 119,384 |
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|
| — |
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|
| 130 |
|
|
| — |
|
|
| — |
|
|
| 130 |
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|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 119,384 |
|
|
| — |
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|
| 130 |
|
|
| — |
|
|
| — |
|
|
| 130 |
|
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 1,718 |
|
|
| — |
|
|
| — |
|
|
| 1,718 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 1,718 |
|
|
| — |
|
|
| — |
|
|
| 1,718 |
|
Unrealized gain on investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 239 |
|
|
| 239 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 239 |
|
|
| 239 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (17,529 | ) |
|
| — |
|
|
| (17,529 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (17,529 | ) |
|
| — |
|
|
| (17,529 | ) |
Balances at March 31, 2021 |
| $ | — |
|
|
| — |
|
| $ | — |
|
|
|
| 41,845,181 |
|
| $ | — |
|
| $ | 409,520 |
|
| $ | (130,732 | ) |
| $ | 283 |
|
| $ | 279,071 |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
|
| 41,845,181 |
|
| $ | — |
|
| $ | 409,520 |
|
| $ | (130,732 | ) |
| $ | 283 |
|
| $ | 279,071 |
|
Issuance of common shares pursuant to asset purchase agreements |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 600,000 |
|
|
| — |
|
|
| 8,924 |
|
|
| — |
|
|
| — |
|
|
| 8,924 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 600,000 |
|
|
| — |
|
|
| 8,924 |
|
|
| — |
|
|
| — |
|
|
| 8,924 |
|
Issuance of common shares upon exercise of stock options |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 175,918 |
|
|
| — |
|
|
| 210 |
|
|
| — |
|
|
| — |
|
|
| 210 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 175,918 |
|
|
| — |
|
|
| 210 |
|
|
| — |
|
|
| — |
|
|
| 210 |
|
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 2,145 |
|
|
| — |
|
|
| — |
|
|
| 2,145 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 2,145 |
|
|
| — |
|
|
| — |
|
|
| 2,145 |
|
Unrealized gain on investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 54 |
|
|
| 54 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 54 |
|
|
| 54 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (26,853 | ) |
|
| — |
|
|
| (26,853 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (26,853 | ) |
|
| — |
|
|
| (26,853 | ) |
Balances at June 30, 2021 |
| $ | — |
|
|
| — |
|
| $ | — |
|
|
|
| 42,621,099 |
|
| $ | — |
|
| $ | 420,799 |
|
| $ | (157,585 | ) |
| $ | 337 |
|
| $ | 263,551 |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
|
| 42,621,099 |
|
| $ | �� |
|
| $ | 420,799 |
|
| $ | (157,585 | ) |
| $ | 337 |
|
| $ | 263,551 |
|
Issuance of common shares pursuant to asset purchase agreements |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 313,359 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |||||||||||||||||||||||||||||||||||||
Issuance of common shares under ESPP |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 15,596 |
|
|
| — |
|
|
| 124 |
|
|
| — |
|
|
| — |
|
|
| 124 |
| |||||||||||||||||||||||||||||||||||||
Issuance of common shares upon exercise of stock options |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 116,165 |
|
|
| — |
|
|
| 149 |
|
|
| — |
|
|
| — |
|
|
| 149 |
| |||||||||||||||||||||||||||||||||||||
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 2,374 |
|
|
| — |
|
|
| — |
|
|
| 2,374 |
| |||||||||||||||||||||||||||||||||||||
Unrealized loss on investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (274 | ) |
|
| (274 | ) | |||||||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19,429 | ) |
|
| — |
|
|
| (19,429 | ) | |||||||||||||||||||||||||||||||||||||
Balances at September 30, 2021 |
| $ | — |
|
|
| — |
|
| $ | — |
|
|
|
| 43,066,219 |
|
| $ | — |
|
| $ | 423,446 |
|
| $ | (177,014 | ) |
| $ | 63 |
|
| $ | 246,495 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
FUSION PHARMACEUTICALS INC.
CONDENSED CONSOLIDATED STATEMENTS OF NON-CONTROLLING INTEREST, CONVERTIBLE PREFERRED SHARES
AND SHAREHOLDERS’ EQUITY (DEFICIT) – CONTINUED
(In thousands, except share amounts)
(Unaudited)
|
| Non-Controlling Interest in Fusion Pharmaceuticals (Ireland) |
|
| Class A and B Convertible Preferred Shares |
|
|
| Common Shares |
|
| Additional Paid-in |
|
| Accumulated |
|
| Accumulated Other Comprehensive |
|
| Total Shareholders’ |
|
| Non-Controlling Interest in Fusion Pharmaceuticals (Ireland) |
|
| Class A and B Convertible Preferred Shares |
|
|
| Common Shares |
|
| Additional Paid-in |
|
| Accumulated |
|
| Accumulated Other Comprehensive |
|
| Total Shareholders’ |
| ||||||||||||||||||||||||||||||
|
| Limited |
|
| Shares |
|
| Amount |
|
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Income |
|
| Equity (Deficit) |
|
| Limited |
|
| Shares |
|
| Amount |
|
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Income (Loss) |
|
| Equity (Deficit) |
| ||||||||||||||||||
Balances at December 31, 2019 |
| $ | 20,961 |
|
|
| 73,125,790 |
|
| $ | 71,592 |
|
|
|
| 1,929,555 |
|
| $ | — |
|
| $ | 1,286 |
|
| $ | (34,774 | ) |
| $ | — |
|
| $ | (33,488 | ) |
| $ | 20,961 |
|
|
| 73,125,790 |
|
| $ | 71,592 |
|
|
|
| 1,929,555 |
|
| $ | — |
|
| $ | 1,286 |
|
| $ | (34,774 | ) |
| $ | — |
|
| $ | (33,488 | ) |
Issuance of Class B convertible preferred shares and Class B preferred share tranche right, net of issuance costs of $93 |
|
| — |
|
|
| 6,598,917 |
|
|
| 9,907 |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,598,917 |
|
|
| 9,907 |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Initial fair value of Class B convertible preferred share tranche right liability |
|
| — |
|
|
| — |
|
|
| (1,105 | ) |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,105 | ) |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Issuance of warrants to purchase Class B convertible preferred shares and Class B preferred exchangeable shares as a non-cash dividend to preferred shareholders |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| (1,286 | ) |
|
| (96 | ) |
|
| — |
|
|
| (1,382 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| (1,286 | ) |
|
| (96 | ) |
|
| — |
|
|
| (1,382 | ) |
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 358 |
|
|
| — |
|
|
| — |
|
|
| 358 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 358 |
|
|
| — |
|
|
| — |
|
|
| 358 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10,222 | ) |
|
| — |
|
|
| (10,222 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10,222 | ) |
|
| — |
|
|
| (10,222 | ) |
Balances at March 31, 2020 |
| $ | 20,961 |
|
|
| 79,724,707 |
|
| $ | 80,394 |
|
|
|
| 1,929,555 |
|
| $ | — |
|
| $ | 358 |
|
| $ | (45,092 | ) |
| $ | — |
|
| $ | (44,734 | ) |
| $ | 20,961 |
|
|
| 79,724,707 |
|
| $ | 80,394 |
|
|
|
| 1,929,555 |
|
| $ | — |
|
| $ | 358 |
|
| $ | (45,092 | ) |
| $ | — |
|
| $ | (44,734 | ) |
Issuance of Class B convertible preferred shares and Class B preferred share tranche right, net of issuance costs of $6 |
|
| — |
|
|
| 36,806,039 |
|
|
| 55,769 |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 36,806,039 |
|
|
| 55,769 |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Issuance of Class B preferred exchangeable shares of Fusion Pharmaceuticals (Ireland) Limited and Class B preferred share tranche right, net of issuance costs of $2 |
|
| 6,722 |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,722 |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Reclassification of Class B convertible preferred share and preferred exchangeable share tranche right liability upon settlement |
|
| 4,257 |
|
|
| — |
|
|
| 35,311 |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,257 |
|
|
| — |
|
|
| 35,311 |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Conversion of Class A and B preferred exchangeable shares into Class A and B convertible preferred shares |
|
| (31,940 | ) |
|
| 28,874,378 |
|
|
| 31,940 |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (31,940 | ) |
|
| 28,874,378 |
|
|
| 31,940 |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Conversion of Class A and B convertible preferred shares into common shares |
|
| — |
|
|
| (145,405,124 | ) |
|
| (203,414 | ) |
|
|
| 27,234,489 |
|
|
| — |
|
|
| 203,414 |
|
|
| — |
|
|
| — |
|
|
| 203,414 |
|
|
| — |
|
|
| (145,405,124 | ) |
|
| (203,414 | ) |
|
|
| 27,234,489 |
|
|
| — |
|
|
| 203,414 |
|
|
| — |
|
|
| — |
|
|
| 203,414 |
|
Conversion of convertible preferred share warrants into common share warrants |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 7,781 |
|
|
| — |
|
|
| — |
|
|
| 7,781 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 7,781 |
|
|
| — |
|
|
| — |
|
|
| 7,781 |
|
Issuance of common shares upon closing of initial public offering, net of offering costs and underwriter fees of $19,447 |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 12,500,000 |
|
|
| — |
|
|
| 193,053 |
|
|
| — |
|
|
| — |
|
|
| 193,053 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 12,500,000 |
|
|
| — |
|
|
| 193,053 |
|
|
| — |
|
|
| — |
|
|
| 193,053 |
|
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 426 |
|
|
| — |
|
|
| — |
|
|
| 426 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 426 |
|
|
| — |
|
|
| — |
|
|
| 426 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (44,733 | ) |
|
| — |
|
|
| (44,733 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (44,733 | ) |
|
| — |
|
|
| (44,733 | ) |
Balances at June 30, 2020 |
| $ | — |
|
|
| — |
|
| $ | — |
|
|
|
| 41,664,044 |
|
| $ | — |
|
| $ | 405,032 |
|
| $ | (89,825 | ) |
| $ | — |
|
| $ | 315,207 |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
|
|
| 41,664,044 |
|
| $ | — |
|
| $ | 405,032 |
|
| $ | (89,825 | ) |
| $ | — |
|
| $ | 315,207 |
|
Issuance of common shares upon exercise of common share warrants |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| 38,340 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |||||||||||||||||||||||||||||||||||||
Share-based compensation expense |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| 1,241 |
|
|
| — |
|
|
| — |
|
|
| 1,241 |
| |||||||||||||||||||||||||||||||||||||
Unrealized loss on investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| (1 | ) | |||||||||||||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,993 | ) |
|
| — |
|
|
| (9,993 | ) | |||||||||||||||||||||||||||||||||||||
Balances at September 30, 2020 |
| $ | — |
|
|
| — |
|
| $ | — |
|
|
|
| 41,702,384 |
|
| $ | — |
|
| $ | 406,273 |
|
| $ | (99,818 | ) |
| $ | (1 | ) |
| $ | 306,454 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
FUSION PHARMACEUTICALS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| Six Months Ended June 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (44,382 | ) |
| $ | (54,955 | ) |
| $ | (63,811 | ) |
| $ | (64,948 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation expense |
|
| 3,863 |
|
|
| 784 |
|
|
| 6,237 |
|
|
| 2,025 |
|
Depreciation and amortization expense |
|
| 265 |
|
|
| 270 |
|
|
| 450 |
|
|
| 373 |
|
Non-cash lease expense |
|
| 516 |
|
|
| 14 |
|
|
| 793 |
|
|
| 3 |
|
Change in fair value of preferred share tranche right liability |
|
| — |
|
|
| 32,722 |
|
|
| — |
|
|
| 32,722 |
|
Change in fair value of preferred share warrant liability |
|
| — |
|
|
| 6,399 |
|
|
| — |
|
|
| 6,399 |
|
Amortization of premiums (accretion of discounts) on investments, net |
|
| 924 |
|
|
| — |
|
|
| 1,361 |
|
|
| 24 |
|
Deferred tax benefit |
|
| (413 | ) |
|
| — |
|
|
| (670 | ) |
|
| (28 | ) |
Common shares issued to acquire in-process research & development |
|
| 8,924 |
|
|
| — |
|
|
| 8,924 |
|
|
| — |
|
Foreign exchange loss |
|
| 36 |
|
|
| — |
|
|
| 5 |
|
|
| — |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (121 | ) |
|
| — |
|
|
| (300 | ) |
|
| — |
|
Prepaid expenses and other current assets |
|
| (374 | ) |
|
| (103 | ) |
|
| (4,110 | ) |
|
| (3,792 | ) |
Other non-current assets |
|
| (1,509 | ) |
|
| — |
|
|
| (6,227 | ) |
|
| (521 | ) |
Accounts payable |
|
| (2,687 | ) |
|
| (319 | ) |
|
| 413 |
|
|
| 150 |
|
Accrued expenses |
|
| 673 |
|
|
| 1,209 |
|
|
| 1,487 |
|
|
| 1,025 |
|
Deferred revenue |
|
| (400 | ) |
|
| — |
|
|
| (546 | ) |
|
| — |
|
Income taxes payable |
|
| (2,800 | ) |
|
| 162 |
|
|
| (2,800 | ) |
|
| (117 | ) |
Operating lease liabilities |
|
| (418 | ) |
|
| — |
|
|
| (619 | ) |
|
| — |
|
Net cash used in operating activities |
|
| (37,903 | ) |
|
| (13,817 | ) |
|
| (59,413 | ) |
|
| (26,685 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of investments |
|
| (132,137 | ) |
|
| — |
|
|
| (157,424 | ) |
|
| (54,286 | ) |
Maturities of investments |
|
| 107,591 |
|
|
| — |
|
|
| 165,255 |
|
|
| — |
|
Purchases of property and equipment |
|
| (793 | ) |
|
| (382 | ) |
|
| (953 | ) |
|
| (1,063 | ) |
Net cash used in investing activities |
|
| (25,339 | ) |
|
| (382 | ) | ||||||||
Net cash provided by (used in) investing activities |
|
| 6,878 |
|
|
| (55,349 | ) | ||||||||
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of Class B convertible preferred shares and Class B preferred share tranche right, net of issuance costs |
|
| — |
|
|
| 65,676 |
|
|
| — |
|
|
| 65,676 |
|
Proceeds from issuance of Class B preferred exchangeable shares of Fusion Pharmaceuticals (Ireland) Limited and Class B preferred share tranche right, net of issuance costs |
|
| — |
|
|
| 6,722 |
|
|
| — |
|
|
| 6,722 |
|
Proceeds from the issuance of common shares upon closing of initial public offering, net of underwriter fees |
|
| — |
|
|
| 197,625 |
|
|
| — |
|
|
| 197,625 |
|
Payment of offering costs |
|
| — |
|
|
| (2,276 | ) |
|
| (216 | ) |
|
| (4,572 | ) |
Proceeds from issuance of common shares upon exercise of stock options |
|
| 340 |
|
|
| — |
| ||||||||
Proceeds from issuance of common shares upon exercise of stock options and ESPP |
|
| 613 |
|
|
| — |
| ||||||||
Net cash provided by financing activities |
|
| 340 |
|
|
| 267,747 |
|
|
| 397 |
|
|
| 265,451 |
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
|
| (62,902 | ) |
|
| 253,548 |
|
|
| (52,138 | ) |
|
| 183,417 |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
| 92,408 |
|
|
| 67,121 |
|
|
| 92,408 |
|
|
| 67,121 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 29,506 |
|
| $ | 320,669 |
|
| $ | 40,270 |
|
| $ | 250,538 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes |
| $ | 3,494 |
|
| $ | 50 |
|
| $ | 3,739 |
|
| $ | 280 |
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
| $ | 1,166 |
|
| $ | — |
|
| $ | 1,166 |
|
| $ | — |
|
Increase in right-of-use assets and operating lease liabilities from operating lease modifications |
| $ | 911 |
|
| $ | — |
|
| $ | 911 |
|
| $ | — |
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment included in accounts payable and accrued expenses |
| $ | 199 |
|
| $ | — |
|
| $ | 25 |
|
| $ | — |
|
Issuance of warrants to purchase Class B preferred shares and Class B preferred exchangeable shares as a non-cash dividend to preferred shareholders |
| $ | — |
|
| $ | 1,382 |
|
| $ | — |
|
| $ | 1,382 |
|
Deferred offering costs included in accounts payable and accrued expenses |
| $ | 160 |
|
| $ | 2,296 |
|
| $ | 60 |
|
| $ | — |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
FUSION PHARMACEUTICALS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. | Nature of the Business and Basis of Presentation |
Fusion Pharmaceuticals Inc., together with its consolidated subsidiaries (“Fusion” or the “Company”), is a clinical-stage oncology company focused on developing next-generation radiopharmaceuticals as precision medicines. The Company was formed and subsequently incorporated as Fusion Pharmaceuticals Inc. in December 2014 under the Canada Business Corporations Act. The Company was founded to advance certain intellectual property relating to radiopharmaceuticals that had been developed by the Centre for Probe Development and Commercialization, a radiopharmaceutical research and good manufacturing practice production center. The Company is headquartered in Hamilton, Ontario.
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, successful discovery and development of its product candidates, development by competitors of new technological innovations, dependence on key personnel, the ability to attract and retain qualified employees, protection of proprietary technology, compliance with governmental regulations, the impact of the COVID-19 pandemic, the ability to secure additional capital to fund operations and commercial success of its product candidates. Product candidates currently under development will require extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel, and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of the Company and its wholly-owned subsidiaries,subsidiary, Fusion Pharmaceuticals US Inc. andThe Company’s Irish subsidiary, Fusion Pharmaceuticals (Ireland) Unlimited Company, which the Company refers to as its Irish subsidiary. The Company’s Irish subsidiary was majority-owned until June 2020 at which time it became a wholly-owned subsidiary and was subsequently re-registered in Ireland as an unlimited company in December 2020. As a result of consolidating the Irish subsidiary as majority-owned until June 2020, the Company reflected a non-controlling interest on the consolidated balance sheet; however, the Company did not recognize a non-controlling interest in the consolidated statements of operations and comprehensive loss as the majority-owned subsidiary had no operating activities and was an extension of the parent company. The Company's Irish subsidiary was liquidated and dissolved in September 2021. All intercompany accounts and transactions have been eliminated in consolidation.
Reverse Share Split
On June 19, 2020, the Company effected a one-for-5.339 reverse share split of its issued and outstanding common shares and a proportional adjustment to the existing conversion ratios for each class of the Company’s Preferred Shares (see Note 8) and Preferred Exchangeable Shares (see Note 8). Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse share split and adjustment of the preferred share conversion ratios.
Initial Public Offering
On June 25, 2020, the Company completed an initial public offering (“IPO”) of its common shares and issued and sold 12,500,000 common shares at a public offering price of $17.00 per share, resulting in net proceeds of $193.1 million after deducting underwriting fees, and after deducting offering costs.
Upon closing of the IPO, the Company’s outstanding preferred exchangeable shares automatically converted into convertible preferred shares then the outstanding convertible preferred shares automatically converted into shares of common shares (see Note 8). Upon conversion of the convertible preferred shares, the Company reclassified the carrying value of the convertible preferred shares to common shares and additional paid-in capital. In addition, the warrants to purchase the Company’s Series B convertible preferred shares and warrants to purchase preferred exchangeable shares of the Company’s Irish subsidiary were converted into warrants to purchase the Company’s common shares upon the closing of the IPO. As a result, the warrant liability was remeasured a final time on the closing date of the IPO and reclassified to shareholders’ equity (deficit).
In connection with the IPO on June 25, 2020, the Company filed an amended and restated articles of the corporation under laws governed by the Canada Business Corporations Act to authorize unlimited common shares with no par value.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities and commitments in the ordinary course of business. Since inception, the Company has funded its operations primarily with proceeds from sales of its convertible preferred shares, including borrowings under a convertible promissory note, which converted into convertible preferred shares, proceeds from sales of its Irish subsidiary’s preferred exchangeable shares, and most recently with the proceeds from the IPO completed in June 2020. The Company has incurred recurring losses since its inception, including net losses of $26.919.4 million and $44.463.8 million for the three and sixnine months ended JuneSeptember 30, 2021, respectively and net losses of $44.710.0 million and $55.064.9 million for the three and sixnine months ended JuneSeptember 30, 2020, respectively. In addition, as of JuneSeptember 30, 2021, the Company had an accumulated deficit of $157.6177.0 million. The Company expects to continue to generate operating losses for the foreseeable future. As of the issuance date of these condensed consolidated financial statements, the Company expects that its cash, cash equivalents and investments will be sufficient to fund its operating expenses and capital expenditure requirements for at least the next 12 months. The future viability of the Company beyond that point is dependent on its ability to raise additional capital to finance its operations.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic, which began in December 2019 and has spread worldwide, has caused many governments to implement measures to slow the spread of the outbreak through quarantines, travel restrictions, heightened border security and other measures. The impact of this pandemic has been, and will likely continue to be, extensive in many aspects of society, which has resulted, and will likely continue to result, in significant disruptions to the global economy as well as businesses and capital markets around the world. The future progression of the pandemic and its effects on the Company’s business and operations are uncertain.
In response to public health directives and orders and to help minimize the risk of the virus to employees, the Company has taken precautionary measures, including implementing work-from-home policies for certain employees. The impact of the virus and variants thereof, including work-from-home policies, may negatively impact productivity, disrupt the Company’s business, and delay its preclinical research and clinical trial activities and its development program timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on the Company’s ability to conduct its business in the ordinary course. Specifically, the Company has experienced material delays in patient recruitment and enrollment in its ongoing Phase 1 clinical trial of FPI-1434 as a result of continued resourcing issues related to COVID-19 at trial sites and potentially due to concerns among patients about participating in clinical trials during a public health emergency. The Company may not be able to enroll additional patient cohorts on its planned timeline due to disruptions at its clinical trial sites and is unable to predict how the COVID-19 pandemic may affect its ability to successfully progress its clinical programs in the future. Other impacts to the Company’s business may include temporary closures of its suppliers or other third parties upon whom the Company relies and disruptions or restrictions on its employees’ ability to travel. Any prolonged material disruption to the Company’s employees, suppliers or other third parties upon whom the Company relies could adversely impact the Company’s preclinical research and clinical trial activities, financial condition and results of operations, including its ability to obtain financing.
The Company is monitoring the potential impact of the COVID-19 pandemic, including variants thereof, on its business and condensed consolidated financial statements. To date, the Company has not experienced material business disruptions or incurred impairment losses in the carrying values of its assets as a result of the pandemic and it is not aware of any specific related event or circumstance that would require it to revise its estimates reflected in these condensed consolidated financial statements.
2. | Summary of Significant Accounting Policies |
Use of Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual of research and development expenses, the valuations of common shares, preferred share tranche rights and preferred share warrantsprior to the closing of the IPO, valuations of share-based awards and revenue recognition. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results may differ from those estimates or assumptions.
Unaudited Interim Financial Information
The accompanying condensed consolidated balance sheet as of JuneSeptember 30, 2021, the condensed consolidated statement of operations and comprehensive loss, and the condensed consolidated statement of non-controlling interest, convertible preferred shares and shareholders’ equity (deficit) for the three and sixnine months ended JuneSeptember 30, 2021 and 2020, and the condensed consolidated statement of cash flows for the sixnine months ended JuneSeptember 30, 2021 and 2020 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of JuneSeptember 30, 2021 and the results of its operations for three and sixnine months ended JuneSeptember 30, 2021 and 2020 and its cash flows for the sixnine months ended JuneSeptember 30, 2021 and 2020. The financial data and other information disclosed in these notes related to the three and sixnine months ended JuneSeptember 30, 2021 and 2020 are also unaudited. The results for the three and sixnine months ended JuneSeptember 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period.
The accompanying balance sheet as of December 31, 2020 has been derived from the Company’s audited financial statements for the year ended December 31, 2020. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements as of December 31, 2020, and notes thereto, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 25, 2021.
Foreign Currency and Currency Translation
The reporting currency of the Company is the U.S. dollar. The functional currency of the Company’s operating company in Canada, operating company in the U.S. and non-operating company in Ireland is also the U.S. dollar. As a result, the Company records no cumulative translation adjustments related to translation of unrealized foreign exchange gains or losses.
For the remeasurement of local currencies to the U.S. dollar functional currency of the Canadian and Irish entities, assets and liabilities are translated into U.S. dollars at the exchange rate in effect on the balance sheet date, and income items and expenses are translated into U.S. dollars at the average exchange rate in effect during the period. Resulting transaction gains (losses) are included in other income (expense), net in the consolidated statements of operations and comprehensive loss, as incurred.
Adjustments that arise from exchange rate changes on transactions denominated in a currency other than the local currency are included in other income (expense), net in the consolidated statements of operations and comprehensive loss, as incurred.
During the three and sixnine months ended JuneSeptember 30, 2021, the Company recorded $0.3 million and $0.2 million, respectively, of foreign currency gains in the condensed consolidated statements of operations and comprehensive loss. During the three and six months ended June 30, 2020, the Company recorded $0.2 million and less than ($0.1) million and $0.1 million, respectively, of foreign currency gains (losses) in the condensed consolidated statements of operations and comprehensive loss. During the three and nine months ended September 30, 2020, the Company recorded less than ($0.1) million of foreign currency losses in the condensed consolidated statements of operations and comprehensive loss for both periods.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents consist of standard checking accounts, money market accounts, and all highly liquid investments with an original maturity of three months or less at the date of purchase.
As of JuneSeptember 30, 2021 and December 31, 2020, the Company was required to maintain separate cash balances of $0.3 million to collateralize corporate credit cards with a bank, which was classified as restricted cash, current, on its condensed consolidated balance sheets. The Company also maintained a $0.1 million guaranteed investment certificate to fulfill certain contractual obligations which was classified as restricted cash, current, as of JuneSeptember 30, 2021 and December 31, 2020.
In connection with the Company’s lease agreement entered into in October 2019 (see Note 13), the Company maintains a letter of credit of $1.5 million for the benefit of the landlord. As of JuneSeptember 30, 2021, $0.3 million and $1.2 million of the underlying cash balance collateralizing this letter of credit was classified as restricted cash, current and non-current, respectively, on the Company’s condensed consolidated balance sheets based on the release date of the restrictions of this cash. As of December 31, 2020, the entire underlying cash balance collateralizing this letter of credit was classified as restricted cash, non-current, on the Company’s condensed consolidated balance sheets.
As of JuneSeptember 30, 2021 and December 31, 2020, the cash, cash equivalents and restricted cash of $29.5$40.3 million and $92.4 million, respectively, presented in the condensed consolidated statements of cash flows included cash and cash equivalents of $27.6$38.4 million and $90.5 million, respectively, and restricted cash of $1.9 million for both periods.
Investments
The Company determines the appropriate classification of its investments in debt securities at the time of purchase and re-evaluates such determination at each balance sheet date. The Company classifies its investments as current or non-current based on each instrument’s underlying maturity date. Investments with original maturities of greater than three months and less than twelve months are classified as current and are included in short-term investments in the condensed consolidated balance sheets. Investments with remaining maturities greater than one year from the balance sheet date are classified as non-current and are included in long-term investments in the condensed consolidated balance sheets. The Company’s investments are classified as available-for-sale, are reported at fair value and consist of U.S. government agency securities, corporate bonds, and commercial paper. Unrealized gains and losses are included in other comprehensive income (loss) as a component of shareholders’ equity (deficit) until realized. Amortization and accretion of premiums and discounts are recorded in interest income (expense). Realized gains and losses on debt securities are included in other income (expense), net.
If any adjustment to fair value reflects a decline in value of the investment, the Company considers all available evidence to evaluate the extent to which the decline is other than temporary and, if so, marks the investment to market on the Company’s condensed consolidated statements of operations and comprehensive loss.
Deferred Offering Costs
The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of an equity financing, these costs are recorded as a reduction of the proceeds from the offering, either as a reduction to the carrying value of the preferred exchangeable shares or convertible preferred shares or in shareholders’ equity (deficit) as a reduction of additional paid-in capital generated as a result of the offering. Should an in-process equity financing be abandoned, the deferred offering costs would be expensed immediately as a charge to operating expenses in the consolidated statements of operations and comprehensive loss. The Company recorded $0.3 million of deferred offering costs as of JuneSeptember 30, 2021 in other non-current assets (see Note 17) and did 0t record any deferred offering costs as of December 31, 2020.
Collaborative Arrangements
The Company considers the nature and contractual terms of arrangements and assesses whether an arrangement involves a joint operating activity pursuant to which the Company is an active participant and is exposed to significant risks and rewards dependent on the commercial success of the activity. If the Company is an active participant and is exposed to significant risks and rewards dependent on the commercial success of the activity, the Company accounts for such arrangement as a collaborative arrangement under ASC 808, Collaborative Arrangements. ASC 808 describes arrangements within its scope and considerations surrounding presentation and disclosure, with recognition matters subjected to other authoritative guidance, in certain cases by analogy.
For arrangements determined to be within the scope of ASC 808 where a collaborative partner is not a customer for certain research and development activities, the Company accounts for payments received for the reimbursement of research and development costs as a contra-expense in the period such expenses are incurred. This reflects the joint risk sharing nature of these activities within a collaborative arrangement. The Company classifies payments owed or receivables recorded as other current liabilities or prepaid expenses and other current assets, respectively, in the Company’s consolidated balance sheets.
If payments from the collaborative partner to the Company represent consideration from a customer in exchange for distinct goods and services provided, then the Company accounts for those payments within the scope of ASC 606, Revenue from Contracts with Customers (“ASC 606”). Please refer to Note 3, “Collaboration Agreement” for additional details regarding the Company’s Strategic Collaboration Agreement with AstraZeneca UK Limited (“AstraZeneca”) (the “AstraZeneca Agreement”).
Revenue from Contracts with Customers
In accordance with ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, it performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii)
determine the transaction price, (iv) allocate the transaction price to the performance obligations within the contract and (v) recognize revenue when (or as) the Company satisfies a performance obligation.
The Company only applies the five-step model to contracts when it determines that it is probable it will collect the consideration it is entitled to 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 the contract to determine whether each promised good or service is a performance obligation. The promised goods or services in the Company’s arrangements typically consist of a license to the Company’s intellectual property and/or research and development services. The Company may provide customers with options to additional items in such arrangements, which are accounted for separately when the customer elects to exercise such options, unless the option provides a material right to the customer. Performance obligations are promises in a contract to transfer a distinct good or service to the customer that (i) the customer can benefit from on its own or together with other readily available resources, and (ii) is separately identifiable from other promises in the contract. Goods or services that are not individually distinct performance obligations are combined with other promised goods or services until such combined group of promises meet the requirements of a performance obligation.
The Company determines transaction price based on the amount of consideration the Company expects to receive for transferring the promised goods or services in the contract. Consideration may be fixed, variable, or a combination of both. At contract inception for arrangements that include variable consideration, the Company estimates the probability and extent of consideration it expects to receive under the contract utilizing either the most likely amount method or expected amount method, whichever best estimates the amount expected to be received. The Company then considers any constraints on the variable consideration and includes in the transaction price variable consideration to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
The Company then allocates the transaction price to each performance obligation based on the relative standalone selling price and recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) control is transferred to the customer and the performance obligation is satisfied. For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
The Company records amounts as accounts receivable when the right to consideration is deemed unconditional. Amounts received, or that are unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract are recognized as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as the current portion of deferred revenue. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.
The Company’s revenue generating arrangements typically include upfront license fees, milestone payments and/or royalties.
If a license is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from nonrefundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
At the inception of an agreement that includes research and development milestone payments, the Company evaluates each milestone to determine when and how much of the milestone to include in the transaction price. The Company first estimates the amount of the milestone payment that the Company could receive using either the expected value or the most likely amount approach. The Company primarily uses the most likely amount approach as this approach is generally most predictive for milestone payments with a binary outcome. Then, the Company considers whether any portion of the estimated amount is subject to the variable consideration constraint (that is, whether it is probable that a significant reversal of cumulative revenue would not occur upon resolution of the uncertainty). The Company updates the estimate of variable consideration included in the transaction price at each reporting date which includes updating the assessment of the likely amount of consideration and the application of the constraint to reflect current facts and circumstances.
For arrangements 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 will recognize 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).
For the three and sixnine months ended JuneSeptember 30, 2021, the Company recorded $0.5$0.3 million and $0.8 million, respectively, of revenue under collaboration agreements. Please refer to Note 3, “Collaboration Agreement” for additional details regarding revenue recognition under the AstraZeneca Agreement.
Business Combinations
In determining whether an acquisition should be accounted for as a business combination or asset acquisition, the Company first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this is the case, the single identifiable asset or the group of similar assets is not deemed to be a business, and is instead deemed to be an asset. If this is not the case, the Company then further evaluates whether the single identifiable asset or group of similar identifiable assets and activities includes, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. If so, the Company concludes that the single identifiable asset or group of similar identifiable assets and activities is a business.
The Company accounts for business combinations using the acquisition method of accounting. Application of this method of accounting requires that (i) identifiable assets acquired (including identifiable intangible assets) and liabilities assumed generally be measured and recognized at fair value as of the acquisition date and (ii) the excess of the purchase price over the net fair value of identifiable assets acquired and liabilities assumed be recognized as goodwill, which is not amortized for accounting purposes but is subject to testing for impairment at least annually. Acquired in-process research and development (“IPR&D”) is recognized at fair value and initially characterized as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative future use. Transaction costs related to business combinations are expensed as incurred. Determining the fair value of assets acquired and liabilities assumed in a business combination requires management to use significant judgment and estimates, especially with respect to intangible assets.
During the measurement period, which extends no later than one year from the acquisition date, the Company may record certain adjustments to the carrying value of the assets acquired and liabilities assumed with the corresponding offset to goodwill. After the measurement period, all adjustments are recorded in the consolidated statements of operations as operating expenses or income.
To date, the Company has not recorded any acquisitions as a business combination.
Asset Acquisitions
The Company measures and recognizes asset acquisitions that are not deemed to be business combinations based on the cost to acquire the assets, which includes transaction costs. Goodwill is not recognized in asset acquisitions. In an asset acquisition, the cost allocated to acquire IPR&D with no alternative future use is charged to expense at the acquisition date.
Contingent consideration in asset acquisitions payable in the form of cash is recognized when payment becomes probable and reasonably estimable, unless the contingent consideration meets the definition of a derivative, in which case the amount becomes part of the asset acquisition cost when acquired. Contingent consideration payable in the form of a fixed number of the Company’s own shares is measured at fair value as of the acquisition date and recognized when the issuance of the shares becomes probable. Upon recognition of the contingent consideration payment, the amount is included in the cost of the acquired asset or group of assets, or, if related to IPR&D with no alternative future use, charged to expense.
Fair Value Measurements
Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined 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. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
| • | Level 1—Quoted prices in active markets for identical assets or liabilities. |
| • | Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. |
| • | Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. |
Prior to the settlement of the Company’s preferred share tranche right liability and prior to the conversion of the Company’s preferred share warrant liability, these instruments were carried at fair value, determined according to Level 3 inputs in the fair value hierarchy described above (see Note 4). The Company’s cash equivalents and investments are carried at fair value, determined according to the fair value hierarchy described above (see Note 4). The carrying values of the Company’s amounts due for refundable investment tax credits and Canadian harmonized sales tax, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these liabilities.
Preferred Share Tranche Right Liability
The subscription agreements for the Company’s Class B convertible preferred shares (see Note 8) and its Irish subsidiary’s Class B preferred exchangeable shares (see Note 8) provided investors the right, or obligated investors, to participate in subsequent offerings of Class B convertible preferred shares or Class B preferred exchangeable shares together with Class B special voting shares in the event that specified development or regulatory milestones were achieved (the “Class B preferred share tranche right liability”).
The Company classified these preferred share tranche rights as a liability on its consolidated balance sheets as each preferred share tranche right was a freestanding financial instrument that may have required the Company to transfer assets upon the achievement of specified milestone events. Each preferred share tranche right liability was initially recorded at fair value upon the date of issuance of each preferred share tranche right and was subsequently remeasured to fair value at each reporting date. Changes in the fair value of the preferred share tranche right liability were recognized as a component of other income (expense) in the consolidated statement of operations and comprehensive loss. Changes in the fair value of the preferred share tranche right liability were recognized until the respective preferred share tranche right was settled upon achievement of the specified milestones or it expired.
On May 15, 2020, the Company achieved the specified regulatory milestone associated with the Class B preferred share tranche right (see Note 8), which triggered the requirement of the Class B shareholders to participate in the Milestone Financing. Upon closing of the Milestone Financing on June 2, 2020, the Company issued and sold 36,806,039 Class B preferred shares at a price of $1.5154 per share and 4,437,189 Class B special voting shares at a price of $0.000001 per share and the Company’s Irish subsidiary issued and sold 4,437,189 Class B preferred exchangeable shares at a price of $1.5154 per share, for aggregate gross proceeds of $62.5 million.
The Class B preferred share tranche right liability (see Note 8) was settled in connection with the achievement of the regulatory milestone associated with the Class B preferred share tranche right. Specifically, the fair value of the Class B preferred share tranche right liability was remeasured for the last time as of the Milestone Financing closing date, resulting in the Company recognizing a loss in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2020 of $32.7 million for the change in the fair value of the tranche right liability between December 31, 2019 and June 2, 2020. Immediately thereafter, the balance of the Class B preferred share tranche right liability of $39.6 million was reclassified to Class B convertible preferred shares in an amount of $35.3 million and to non-controlling interest in the Company’s Irish subsidiary in an amount of $4.3 million on the consolidated balance sheet. For the three and sixnine months ended JuneSeptember 30, 2020, the Company recognized lossesa loss of $31.6 million and $32.7 million respectively, in the condensed consolidated statement of operations and comprehensive loss for the change in the fair value of the tranche right liability.
Preferred Share Warrant Liability
The Company classified warrants to purchase its convertible preferred shares and warrants to purchase preferred exchangeable shares of the Company’s Irish subsidiary as a liability on its consolidated balance sheets as these warrants were freestanding financial instruments that may have required the Company to transfer assets upon exercise (see Note 8). The preferred share warrant liability, which consisted of warrants to purchase Class B convertible preferred shares of the Company and warrants to purchase Class B preferred exchangeable shares of the Company’s Irish subsidiary, were initially recorded at fair value upon the date of issuance of each warrant and were subsequently remeasured to fair value at each reporting date. Changes in the fair value of the preferred share warrant liability were recognized as a component of other income (expense) in the consolidated statement of operations and comprehensive loss. Changes in the fair value of the preferred share warrant liability were recognized until each respective warrant was exercised, expired or qualified for equity classification.
Upon the closing of the IPO, the warrants to purchase its convertible preferred shares and warrants to purchase preferred exchangeable shares of the Company’s Irish subsidiary were converted into warrants to purchase shares of the Company’s common shares.shares. As a result, the warrant liability was remeasured a final time on the closing date of the IPO and reclassified to shareholders’ equity (deficit) as the warrants qualify for equity classification.
Leases
Prior to January 1, 2021, the Company accounted for leases in accordance with ASC 840, Leases. At lease inception, the Company determined if an arrangement was an operating or capital lease. For operating leases, the Company recognized rent expense,
inclusive of rent escalation, holidays and lease incentives, on a straight-line basis over the lease term. The difference between rent expense recorded and the amount paid was charged to deferred rent. The Company presented lease incentives as deferred rent and amortized the incentives as a reduction to rent expense on a straight-line basis over the lease term. The Company classified deferred rent as current and noncurrent liabilities based on the portion of the deferred rent that was scheduled to mature within the proceeding twelve months.
Effective January 1, 2021, the Company accounts for leases in accordance with ASC 842, Leases. At contract inception, the Company determines if an arrangement is or contains a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If determined to be or contain a lease, the lease is assessed for classification as either an operating or finance lease at the lease commencement date, defined as the date on which the leased asset is made available for use by the Company, based on the economic characteristics of the lease. For each lease with a term greater than twelve months, the Company records a right-of-use asset and lease liability.
A right-of-use asset represents the economic benefit conveyed to the Company by the right to use the underlying asset over the lease term. A lease liability represents the obligation to make lease payments arising from the lease. The Company records amortization of operating right-of-use assets and accretion of lease liabilities as a single lease cost on a straight-line basis over the lease term. The Company elected the practical expedient to not separate lease and non-lease components and therefore measures each lease payment as the total of the fixed lease and associated non-lease components. Lease liabilities are measured at the lease commencement date and calculated as the present value of the future lease payments in the contract using the rate implicit in the contract, when available. If an implicit rate is not readily determinable, the Company uses its incremental borrowing rate measured as the rate at which the Company could borrow, on a fully collateralized basis, a commensurate loan in the same currency over a period consistent with the lease term at the commencement date. Right-of-use assets are measured as the lease liability plus initial direct costs and prepaid lease payments, less lease incentives granted by the lessor. The lease term is measured as the noncancelable period in the contract, adjusted for any options to extend or terminate when it is reasonably certain the Company will extend the lease term via such options based on an assessment of economic factors present as of the lease commencement date. The Company elected the practical expedient to not recognize leases with a lease term of twelve months or less.
The Company assesses its right-of-use assets for impairment consistent with the assessment performed for long-lived assets used in operations. If an impairment is recognized on operating lease right-of-use assets, the lease liability continues to be recognized using the same effective interest method as before the impairment and the operating lease right-of-use asset is amortized over the remaining term of the lease on a straight-line basis.
The Company’s operating leases are presented in the condensed consolidated balance sheet as operating lease right-of-use assets, classified as noncurrent assets, and operating lease liabilities, classified as current and noncurrent liabilities based on the discounted lease payments to be made within the proceeding twelve months. Variable costs associated with a lease, such as maintenance and utilities, are not included in the measurement of the lease liabilities and right-of-use assets but rather are expensed when the events determining the amount of variable consideration to be paid have occurred.
Research, Development and Manufacturing Contract Costs and Accruals
The Company has entered into various research, development and manufacturing contracts with research institutions and other companies. These agreements are generally cancelable, and related costs are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research, development and manufacturing costs. When billing terms under these contracts do not coincide with the timing of when the work is performed, the Company is required to make estimates of outstanding obligations to those third parties as of period end. Any accrual estimates are based on a number of factors, including the Company’s knowledge of the progress towards completion of the research, development and manufacturing activities, invoicing to date under the contracts, communication from the research institutions and other companies of any actual costs incurred during the period that have not yet been invoiced and the costs included in the contracts. 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 accrual estimates made by the Company have not been materially different from the actual costs.
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in shareholders’ equity (deficit) that result from transactions and economic events other than those with shareholders. For the three and sixnine months ended JuneSeptember 30, 2021 and 2020, unrealized gains and losses on investments are included in other comprehensive income (loss) as a component of shareholders’ equity (deficit) until realized. There was no difference between net loss and comprehensive loss for the three and six months ended June 30, 2020.
Net Loss per Share
The Company follows the two-class method when computing net income (loss) per share as the Company has issued shares that meet the definition of participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common shareholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.
Basic net income (loss) per share attributable to common shareholders is computed by dividing the net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted net income (loss) attributable to common shareholders is computed by adjusting net income (loss) attributable to common shareholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net income (loss) per share attributable to common shareholders is computed by dividing the diluted net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding for the period, including potential dilutive common shares. For purpose of this calculation, outstanding stock options, warrants and convertible preferred shares are considered potential dilutive common shares.
The Company’s convertible preferred shares contractually entitle the holders of such shares to participate in dividends but do not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss attributable to common shareholders, such losses are not allocated to such participating securities. In periods in which the Company reported a net loss attributable to common shareholders, diluted net loss per share attributable to common shareholders is the same as basic net loss per share attributable to common shareholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common shareholders for the three and sixnine months ended JuneSeptember 30, 2021 and 2020.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), as subsequently amended, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors), and replaces the existing guidance in ASC 840, Leases. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine the recognition pattern of lease expense over the term of the lease. In addition, a lessee is required to record (i) a right-of-use asset and a lease liability on its balance sheet for all leases with accounting lease terms of more than 12 months regardless of whether it is an operating or financing lease and (ii) lease expense in its consolidated statement of operations for operating leases and amortization and interest expense in its consolidated statement of operations for financing leases. Leases with a term of 12 months or less may be accounted for similar to existing guidance for operating leases under ASC 840. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), which added an optional transition method that allows companies to adopt the standard as of the beginning of the year of adoption as opposed to the earliest comparative period presented.
The Company early adopted the new leasing standard effective January 1, 2021, using the alternative modified retrospective transition approach applied to leases existing as of January 1, 2021. As a result, prior periods are presented in accordance with the previous guidance in ASC 840. The Company has elected to apply the package of practical expedients requiring no reassessment of whether any expired or existing contracts are or contain leases, the lease classification of any expired or existing leases, or the capitalization of initial direct costs for any existing leases. Additionally, the Company has elected not to separate lease and non-lease components and not to recognize leases with an initial term of twelve months or less.
The cumulative effect of the adoption of ASC 842 on the Company’s consolidated balance sheets as of January 1, 2021 was as follows (in thousands):
|
| Balance as of |
|
| Impact of |
|
| Balance as of |
| |||
|
| December 31, 2020 |
|
| Adoption |
|
| January 1, 2021 |
| |||
Prepaid expenses and other current assets |
| $ | 5,340 |
|
| $ | (26 | ) |
| $ | 5,314 |
|
Operating lease right-of-use assets |
| $ | — |
|
| $ | 5,664 |
|
| $ | 5,664 |
|
Total assets |
| $ | 310,676 |
|
| $ | 5,638 |
|
| $ | 316,314 |
|
Operating lease liabilities |
| $ | — |
|
| $ | 959 |
|
| $ | 959 |
|
Deferred rent, net of current portion |
| $ | 11 |
|
| $ | (11 | ) |
| $ | — |
|
Operating lease liabilities, net of current portion |
| $ | — |
|
| $ | 4,690 |
|
| $ | 4,690 |
|
Total liabilities |
| $ | 16,163 |
|
| $ | 5,638 |
|
| $ | 21,801 |
|
The adoption of ASC 842 did not have a material impact on the Company’s condensed consolidated statements of operations and comprehensive loss, statements of non-controlling interest, convertible preferred shares and shareholders’ equity (deficit) or statements of cash flows as of January 1, 2021.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”) as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for the Company for interim and annual periods beginning after December 15, 2022, with early adoption permitted. We adopted ASU 2019-12 effective January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on our condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
The Company qualifies as “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and has elected to “opt in” to the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company will adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and will do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company. The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which narrowed the scope and changed the effective date for non-public entities for ASU 2016-13. The FASB subsequently issued supplemental guidance within ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”). ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. This guidance is effective for the Company for annual periods beginning after December 15, 2022, including interim periods within that fiscal year. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-13 will have on its consolidated financial statements.
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides clarification and reduces diversity in accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This guidance is effective for annual periods beginning after December 15, 2021, including interim periods within that fiscal year. Companies should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2021-04 will have on its consolidated financial statements.
3. | Collaboration Agreement |
Strategic Collaboration Agreement with AstraZeneca UK Limited
On October 30, 2020, the Company and AstraZeneca entered into the AstraZeneca Agreement pursuant to which the Company and AstraZeneca will work to jointly discover, develop and commercialize next-generation alpha-emitting radiopharmaceuticals and combination therapies for the treatment of cancer globally by leveraging the Company’s Targeted Alpha Therapies, or TATs, platform and expertise in radiopharmaceuticals with AstraZeneca’s leading portfolio of antibodies and cancer therapeutics, including DNA damage response inhibitors (“DDRis”). Each party retains full ownership over its existing assets.
The AstraZeneca Agreement consists of 2 distinct collaboration programs: novel TATs and combination therapies. Under the AstraZeneca Agreement, the parties may develop up to three novel TATs (the “Novel TATs Collaboration”). The parties will also evaluate up to five potential combination strategies involving the Company’s existing assets, including the Company’s lead candidate FPI-1434, in combination with certain of AstraZeneca’s existing therapeutics for the treatment of various cancers (the “Combination Therapies Collaboration”).
The AstraZeneca Agreement expires on a TAT-by-TAT and combination-by-combination basis upon the later of the expiration of development and exclusivity obligations relating to such TAT or combination or, if such TAT or combination is commercialized as a product under the AstraZeneca Agreement, the expiration of the commercial life of such product. The Company and AstraZeneca can each terminate the AstraZeneca Agreement for the other party’s uncured material breach following the applicable notice period. Each of the Company and AstraZeneca may also terminate the AstraZeneca Agreement with respect to any TAT or combination product if such party determines that the continued development of such TAT or combination product is not commercially viable, or for a material safety issue with respect to such TAT or combination product.
Novel TATs Collaboration
As partImpact of the Novel TATs Collaboration,COVID-19 Pandemic
The COVID-19 pandemic, which began in December 2019 and has spread worldwide, has caused many governments to implement measures to slow the partiesspread of the outbreak through quarantines, travel restrictions, heightened border security and other measures. The impact of this pandemic has been, and will likely continue to be, extensive in many aspects of society, which has resulted, and will likely continue to result, in significant disruptions to the global economy as well as businesses and capital markets around the world. The future progression of the pandemic and its effects on the Company’s business and operations are uncertain.
In response to public health directives and orders and to help minimize the risk of the virus to employees, the Company has taken precautionary measures, including implementing work-from-home policies for certain employees. The impact of the virus and variants thereof, including work-from-home policies, may develop upnegatively impact productivity, disrupt the Company’s business, and delay its preclinical research and clinical trial activities and its development program timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on the Company’s ability to three novel TATs.conduct its business in the ordinary course. Specifically, the Company has experienced material delays in patient recruitment and enrollment in its ongoing Phase 1 clinical trial of FPI-1434 as a result of continued resourcing issues related to COVID-19 at trial sites and potentially due to concerns among patients about participating in clinical trials during a public health emergency. The Company may not be able to enroll additional patient cohorts on its planned timeline due to disruptions at its clinical trial sites and AstraZeneca will share development costs equally (with each party responsible foris unable to predict how the cost ofCOVID-19 pandemic may affect its own supplyability to successfully progress its clinical programs in connection with such development). Either party has the right to opt out of the co-development and co-commercialization arrangement at pre-determined timepoints and obtain exclusive rights to a novel TAT in exchange for milestone payments to the other party of up to $145.0 million per novel TAT and a low or high single-digit royalties on future sales (depending on the opt out time point). If neither party opts out, and unless otherwise agreed by the parties, AstraZeneca will lead worldwide commercialization activities for the novel TATs, subjectfuture. Other impacts to the Company’s optionbusiness may include temporary closures of its suppliers or other third parties upon whom the Company relies and disruptions or restrictions on its employees’ ability to co-promotetravel. Any prolonged material disruption to the TATsCompany’s employees, suppliers or other third parties upon whom the Company relies could adversely impact the Company’s preclinical research and clinical trial activities, financial condition and results of operations, including its ability to obtain financing.
The Company is monitoring the potential impact of the COVID-19 pandemic, including variants thereof, on its business and condensed consolidated financial statements. To date, the Company has not incurred impairment losses in the carrying values of its assets as a result of the pandemic and it is not aware of any specific related event or circumstance that would require it to revise its estimates reflected in these condensed consolidated financial statements.
2. | Summary of Significant Accounting Policies |
Use of Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual of research and development expenses, the valuations of common shares, preferred share tranche rights and preferred share warrants prior to the closing of the IPO, valuations of share-based awards and revenue recognition. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results may differ from those estimates or assumptions.
Unaudited Interim Financial Information
The accompanying condensed consolidated balance sheet as of September 30, 2021, the condensed consolidated statement of operations and comprehensive loss, and the condensed consolidated statement of non-controlling interest, convertible preferred shares and shareholders’ equity (deficit) for the three and nine months ended September 30, 2021 and 2020, and the condensed consolidated statement of cash flows for the nine months ended September 30, 2021 and 2020 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2021 and the results of its operations for three and nine months ended September 30, 2021 and 2020 and its cash flows for the nine months ended September 30, 2021 and 2020. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2021 and 2020 are also unaudited. The results for the three and nine months ended September 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period.
The accompanying balance sheet as of December 31, 2020 has been derived from the Company’s audited financial statements for the year ended December 31, 2020. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements as of December 31, 2020, and notes thereto, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 25, 2021.
Foreign Currency and Currency Translation
The reporting currency of the Company is the U.S. dollar. The functional currency of the Company’s operating company in Canada, operating company in the U.S. All profitsand non-operating company in Ireland is also the U.S. dollar. As a result, the Company records no cumulative translation adjustments related to translation of unrealized foreign exchange gains or losses.
For the remeasurement of local currencies to the U.S. dollar functional currency of the Canadian and Irish entities, assets and liabilities are translated into U.S. dollars at the exchange rate in effect on the balance sheet date, and income items and expenses are translated into U.S. dollars at the average exchange rate in effect during the period. Resulting transaction gains (losses) are included in other income (expense), net in the consolidated statements of operations and comprehensive loss, as incurred.
Adjustments that arise from exchange rate changes on transactions denominated in a currency other than the local currency are included in other income (expense), net in the consolidated statements of operations and comprehensive loss, as incurred.
During the three and nine months ended September 30, 2021, the Company recorded less than ($0.1) million and $0.1 million, respectively, of foreign currency gains (losses) in the condensed consolidated statements of operations and comprehensive loss. During the three and nine months ended September 30, 2020, the Company recorded less than ($0.1) million of foreign currency losses in the condensed consolidated statements of operations and comprehensive loss for both periods.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents consist of standard checking accounts, money market accounts, and all highly liquid investments with an original maturity of three months or less at the date of purchase.
As of September 30, 2021 and December 31, 2020, the Company was required to maintain separate cash balances of $0.3 million to collateralize corporate credit cards with a bank, which was classified as restricted cash, current, on its condensed consolidated balance sheets. The Company also maintained a $0.1 million guaranteed investment certificate to fulfill certain contractual obligations which was classified as restricted cash, current, as of September 30, 2021 and December 31, 2020.
In connection with the Company’s lease agreement entered into in October 2019 (see Note 13), the Company maintains a letter of credit of $1.5 million for the benefit of the landlord. As of September 30, 2021, $0.3 million and $1.2 million of the underlying cash balance collateralizing this letter of credit was classified as restricted cash, current and non-current, respectively, on the Company’s condensed consolidated balance sheets based on the release date of the restrictions of this cash. As of December 31, 2020, the entire underlying cash balance collateralizing this letter of credit was classified as restricted cash, non-current, on the Company’s condensed consolidated balance sheets.
As of September 30, 2021 and December 31, 2020, the cash, cash equivalents and restricted cash of $40.3 million and $92.4 million, respectively, presented in the condensed consolidated statements of cash flows included cash and cash equivalents of $38.4 million and $90.5 million, respectively, and restricted cash of $1.9 million for both periods.
Investments
The Company determines the appropriate classification of its investments in debt securities at the time of purchase and re-evaluates such determination at each balance sheet date. The Company classifies its investments as current or non-current based on each instrument’s underlying maturity date. Investments with original maturities of greater than three months and less than twelve months are classified as current and are included in short-term investments in the condensed consolidated balance sheets. Investments with remaining maturities greater than one year from the balance sheet date are classified as non-current and are included in long-term investments in the condensed consolidated balance sheets. The Company’s investments are classified as available-for-sale, are reported at fair value and consist of U.S. government agency securities, corporate bonds, and commercial paper. Unrealized gains and losses resulting from such commercialization activities will be shared equally.are included in other comprehensive income (loss) as a component of shareholders’ equity (deficit) until realized. Amortization and accretion of premiums and discounts are recorded in interest income (expense). Realized gains and losses on debt securities are included in other income (expense), net.
If any adjustment to fair value reflects a decline in value of the investment, the Company considers all available evidence to evaluate the extent to which the decline is other than temporary and, if so, marks the investment to market on the Company’s condensed consolidated statements of operations and comprehensive loss.
Deferred Offering Costs
The Novel TATs CollaborationCompany capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of an equity financing, these costs are recorded as a reduction of the proceeds from the offering, either as a reduction to the carrying value of the preferred exchangeable shares or convertible preferred shares or in shareholders’ equity (deficit) as a reduction of additional paid-in capital generated as a result of the offering. Should an in-process equity financing be abandoned, the deferred offering costs would be expensed immediately as a charge to operating expenses in the consolidated statements of operations and comprehensive loss. The Company recorded $0.3 million of deferred offering costs as of September 30, 2021 in other non-current assets and did 0t record any deferred offering costs as of December 31, 2020.
Collaborative Arrangements
The Company considers the nature and contractual terms of arrangements and assesses whether an arrangement involves a joint operating activity pursuant to which the Company is an active participant and is exposed to significant risks and rewards dependent on the commercial success of the activity. If the Company is an active participant and is exposed to significant risks and rewards dependent on the commercial success of the activity, the Company accounts for such arrangement as a collaborative arrangement under ASC 808, Collaborative Arrangements. ASC 808 describes arrangements within its scope and considerations surrounding presentation and disclosure, with recognition matters subjected to other authoritative guidance, in certain cases by analogy.
For arrangements determined to be within the scope of ASC 808 as the Company and AstraZeneca are both active participants in thewhere a collaborative partner is not a customer for certain research and development activities, and are exposed to significant risks and rewards that are dependent on commercial successthe Company accounts for payments received for the reimbursement of the activities of the arrangement. The research and development activities arecosts as a unit of account undercontra-expense in the scope of ASC 808 and are not promises to a customer under the scope of ASC 606.
The Company records its portion of the research and development expenses as the relatedperiod such expenses are incurred. AllThis reflects the joint risk sharing nature of these activities within a collaborative arrangement. The Company classifies payments receivedowed or amounts due from AstraZeneca for reimbursement of shared costs are accounted forreceivables recorded as an offset to research and development expense. For the three and six months ended June 30, 2021, the Company incurred $0.2 million and $0.3 million, respectively, in gross research and development expenses relating to the Novel TATs Collaboration which was offset by $0.1 million and $0.2 million, respectively, in amounts due from AstraZeneca for reimbursement of shared costs. As of June 30, 2021, the Company recorded $0.2 million due from AstraZeneca for reimbursement of shared costs inother current liabilities or prepaid expenses and other current assets.
Combination Therapies Collaboration
As part of the Combination Therapies Collaboration, the parties will evaluate up to five potential combination strategies involvingassets, respectively, in the Company’s existing assets, includingconsolidated balance sheets.
If payments from the Company’s lead candidate FPI-1434, in combination with certain of AstraZeneca’s existing therapeutics for the treatment of various cancers. The Company received an upfront payment of $5.0 million from AstraZeneca in December 2020 associated with the Combination Therapies Collaboration. AstraZeneca will fully fund all research and development activities for the combination strategies, until such point ascollaborative partner to the Company may opt-in to the clinical development activities.
The Company also has the right to opt-out of clinical development activities relating to these combination therapies. In such instance, the Company will be responsiblerepresent consideration from a customer in exchange for repaying its share of the development costs via a royalty on the additional combination sales only if its drug is approved on the basis of clinical development solely conducted by AstraZeneca, in which case the royalty payments shall also include a variable risk premium based on the number of the Company’s product candidates to have received regulatory approval at that time.
Each party will have the sole right, on a country-by-country basis, to commercialize its respective contributed compound as a component of any combination therapy for which such party’s contributed compound may be commercialized under a separate marketing authorization from the other party’s contributed compound to such combination therapy. The parties will negotiate in good faith on a combination therapy-by-combination therapy basis the terms and conditions to co-commercialize any combination therapy that is to be commercialized under a single marketing authorization. During the period of time commencing with the inclusion of an available molecular target in the selection pool for development as a combination therapy and ending upon the end of the nomination period or earlier removal of such combination target from such pool, the Company will not undertake any preclinical or clinical studies combining the Company’s TAT platform with any compound modulating the activity of such combination target. Following selection of a target under the AstraZeneca Agreement and payment of an exclusivity fee by AstraZeneca, and provided that AstraZeneca enrolls its first patient in a clinical trial as further defined in the AstraZeneca Agreement within a pre-defined period of time of such selection, the Company will not undertake any preclinical or clinical studies combining the Company’s TAT platform with compounds modulating the same combination target for the duration of the evaluation period for such combination target, as further defined in the AstraZeneca Agreement. Within a certain time period following initiation of the evaluation period with respect to a combination target, AstraZeneca has the exclusive right to undertake, alone or in collaboration with the Company, all further clinical or preclinical combination studies with respect to a combination target by paying certain exclusivity fees. The Company is eligible to receive future payments of up to $40.0 million, including those for the achievement of certain clinical milestones and exclusivity fees.
The Company determined the research and development activities associated with the Combination Therapies Collaboration are a key component of its central operations and AstraZeneca has contracted with the Company to obtaindistinct goods and services which are an output of the Company’s ordinary activities in exchange for consideration. Further,provided, then the Company does not share the risks and rewards of the underlying research activities making AstraZeneca a customeraccounts for the Combination Therapies Collaboration which fallsthose payments within the scope of ASC 606.606, Revenue from Contracts with Customers (“ASC 606”). Please refer to Note 3, “Collaboration Agreement” for additional details regarding the Company’s Strategic Collaboration Agreement with AstraZeneca UK Limited (“AstraZeneca”) (the “AstraZeneca Agreement”).
To determine the appropriate amount of revenue to be recognized underRevenue from Contracts with Customers
In accordance with ASC 606, the Company performed the following steps: (i) identify therecognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the contract, (ii) determine whetherconsideration which the promisedCompany expects to receive in exchange for those goods or servicesservices. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, it performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations including whether they are distinct in the context of the contract, (iii) measuredetermine the transaction price, including the constraint on variable consideration, (iv) allocate the transaction price to the performance obligations within the contract and (v) recognize revenue when (or as) the Company satisfies eacha performance obligation.
UnderThe Company only applies the five-step model to contracts when it determines that it is probable it will collect the consideration it is entitled to 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 accounts for (i)assesses the goods or services promised within the contract to determine whether each promised good or service is a performance obligation. The promised goods or services in the Company’s arrangements typically consist of a license it conveyed to AstraZeneca with respect to certainthe Company’s intellectual property and (ii) the obligations to performand/or research and development services as part of the Combination Therapies Collaboration as a single performance obligation under the AstraZeneca Agreement.services. The Company concluded AstraZeneca’smay provide customers with options to additional items in such arrangements, which are accounted for separately when the customer elects to exercise such options, unless the option provides a material right to purchase exclusive optionsthe customer. Performance obligations are promises in a contract to obtain certain development, manufacturingtransfer a distinct good or service to the customer that (i) the customer can benefit from on its own or together with other readily available resources, and commercialization rights represent customer options(ii) is separately identifiable from other promises in the contract. Goods or services that are not individually distinct performance obligations as they do not contain any discountsare combined with other promised goods or other rights that would be consideredservices until such combined group of promises meet the requirements of a material right in the arrangement. Such options will be accounted for upon AstraZeneca’s election.performance obligation.
The Company determined the transaction price under ASC 606 at the inception of the AstraZeneca Agreement to be the $5.0 million upfront payment. The cost reimbursement payments for all costs incurred by the Company under the Combination Therapies Collaboration represent variable consideration that is not constrained. Additionally, the clinical milestone payments represent variable consideration that is constrained. In making this assessment, the Company considered several factors, including the fact that achievement of the milestones are outside its control and contingent upon the future success of clinical trials and AstraZeneca’s actions. The payments related to the achievement of certain clinical milestones do not relate to separate, distinct performance obligations.
Under ASC 606, the Company recognizes revenue using the cost-to-cost method, which it believes best depicts the transfer of control to the customer. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue is recorded as a percentage of the estimateddetermines transaction price based on the amount of consideration the Company expects to receive for transferring the promised goods or services in the contract. Consideration may be fixed, variable, or a combination of both. At contract inception for arrangements that include variable consideration, the Company estimates the probability and extent of progress towards completion. Under ASC 606,consideration it expects to receive under the estimated transaction price includescontract utilizing either the most likely amount method or expected amount method, whichever best estimates the amount expected to be received. The Company then considers any constraints on the variable consideration that is not constrained. The Company does not includeand includes in the transaction price variable consideration to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when anythe uncertainty associated with the variable consideration is subsequently resolved.
The estimateCompany then allocates the transaction price to each performance obligation based on the relative standalone selling price and recognizes as revenue the amount of the Company’s measurementtransaction price that is allocated to the respective performance obligation when (or as) control is transferred to the customer and the performance obligation is satisfied. For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
The Company records amounts as accounts receivable when the right to consideration is deemed unconditional. Amounts received, or that are unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract are recognized as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as the current portion of deferred revenue. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.
The Company’s revenue generating arrangements typically include upfront license fees, milestone payments and/or royalties.
If a license is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from nonrefundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
At the inception of an agreement that includes research and development milestone payments, the Company evaluates each milestone to determine when and how much of the milestone to include in the transaction price. The Company first estimates the amount of the milestone payment that the Company could receive using either the expected value or the most likely amount approach. The Company primarily uses the most likely amount approach as this approach is generally most predictive for milestone payments with a binary outcome. Then, the Company considers whether any portion of the estimated amount is subject to the variable consideration constraint (that is, whether it is probable that a significant reversal of cumulative revenue would not occur upon resolution of the uncertainty). The Company updates the estimate of variable consideration to be included in the transaction price will be updated at each reporting date as a change in estimate.which includes updating the assessment of the likely amount of consideration and the application of the constraint to reflect current facts and circumstances.
For the clinicalarrangements that include sales-based royalties, including milestone payments based on the Company utilizeslevel of sales, and the most likely amount methodlicense is deemed to determinebe the amounts recognized and timing of recognition. Oncepredominant item to which the constraint is removed, the clinical milestone payments will be accounted for with the research and development services for the purposes of revenue recognition which will occur over time as the services are provided. Upon the achievement of any milestone for specified clinical development events,royalties relate, the Company will utilize the same cost-to-cost model with a cumulative catch-up recognized in the period in which any such event occurs.
The Company will re-evaluate the transaction pricerecognize revenue at the endlater of each reporting period and as uncertain events are resolved,(i) when the related sales occur, or other changes in circumstances occur, adjust its estimate(ii) when the performance obligation to which some or all of the transaction price if necessary. As of December 31, 2020,royalty has been allocated has been satisfied (or partially satisfied).
For the three and nine months ended September 30, 2021, the Company recorded the upfront fee as a contract liability$0.3 million and $0.8 million, respectively, of revenue under collaboration agreements. Please refer to Note 3, “Collaboration Agreement” for deferredadditional details regarding revenue in its condensed consolidated balance sheet as it had yet to provide any servicesrecognition under the AstraZeneca Agreement.
Business Combinations
In determining whether an acquisition should be accounted for as a business combination or asset acquisition, the Company first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this is the case, the single identifiable asset or the group of similar assets is not deemed to be a business, and is instead deemed to be an asset. If this is not the case, the Company then further evaluates whether the single identifiable asset or group of similar identifiable assets and activities includes, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. If so, the Company concludes that the single identifiable asset or group of similar identifiable assets and activities is a business.
The following table presents changesCompany accounts for business combinations using the acquisition method of accounting. Application of this method of accounting requires that (i) identifiable assets acquired (including identifiable intangible assets) and liabilities assumed generally be measured and recognized at fair value as of the acquisition date and (ii) the excess of the purchase price over the net fair value of identifiable assets acquired and liabilities assumed be recognized as goodwill, which is not amortized for accounting purposes but is subject to testing for impairment at least annually. Acquired in-process research and development (“IPR&D”) is recognized at fair value and initially characterized as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative future use. Transaction costs related to business combinations are expensed as incurred. Determining the fair value of assets acquired and liabilities assumed in a business combination requires management to use significant judgment and estimates, especially with respect to intangible assets.
During the measurement period, which extends no later than one year from the acquisition date, the Company may record certain adjustments to the carrying value of the assets acquired and liabilities assumed with the corresponding offset to goodwill. After the measurement period, all adjustments are recorded in the Company’s contract assets and liabilities for the six months ended June 30, 2021 (in thousands):consolidated statements of operations as operating expenses or income.
|
| Balance as of |
|
|
|
|
|
|
|
|
|
| Balance as of |
| ||
|
| December 31, 2020 |
|
| Additions |
|
| Deductions |
|
| June 30, 2021 |
| ||||
Contract assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
| $ | — |
|
| $ | 121 |
|
| $ | — |
|
| $ | 121 |
|
Contract liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue |
| $ | 5,000 |
|
| $ | — |
|
| $ | (400 | ) |
| $ | 4,600 |
|
During the three and six months ended June 30, 2021 and 2020,To date, the Company recognized the following revenue (in thousands):has not recorded any acquisitions as a business combination.
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Revenue recognized in the period from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts included in deferred revenue at the beginning of the period |
| $ | 400 |
|
| $ | — |
|
| $ | 400 |
|
| $ | — |
|
Asset Acquisitions
The current portionCompany measures and recognizes asset acquisitions that are not deemed to be business combinations based on the cost to acquire the assets, which includes transaction costs. Goodwill is not recognized in asset acquisitions. In an asset acquisition, the cost allocated to acquire IPR&D with no alternative future use is charged to expense at the acquisition date.
Contingent consideration in asset acquisitions payable in the form of deferred revenuecash is recognized when payment becomes probable and deferred revenue, netreasonably estimable, unless the contingent consideration meets the definition of current portion, are $1.7 million and $2.9 million asa derivative, in which case the amount becomes part of June 30, 2021, respectively, which reflectsthe asset acquisition cost when acquired. Contingent consideration payable in the form of a fixed number of the Company’s estimate of the revenue it expects to recognize within the next 12 months and beyond 12 months, respectively. The Company expects to recognize the revenue associated with the AstraZeneca Agreement in subsequent periods through the year ending December 31, 2024.
|
|
The following tables present information about the Company’s financial assets and liabilities that areown shares is measured at fair value as of the acquisition date and recognized when the issuance of the shares becomes probable. Upon recognition of the contingent consideration payment, the amount is included in the cost of the acquired asset or group of assets, or, if related to IPR&D with no alternative future use, charged to expense.
Fair Value Measurements
Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined 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 a recurring basisthe measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and indicatesminimize the leveluse of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, used to determine such fair values (in thousands):
|
| Fair Value Measurements as of June 30, 2021 Using: |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
| $ | 11,109 |
|
| $ | — |
|
| $ | — |
|
| $ | 11,109 |
|
Commercial paper |
|
| — |
|
|
| 1,000 |
|
|
| — |
|
|
| 1,000 |
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
| — |
|
|
| 29,495 |
|
|
| — |
|
|
| 29,495 |
|
Corporate bonds |
|
| — |
|
|
| 36,279 |
|
|
| — |
|
|
| 36,279 |
|
Municipal bonds |
|
| — |
|
|
| 17,078 |
|
|
| — |
|
|
| 17,078 |
|
Canadian Government agencies |
|
| — |
|
|
| 8,883 |
|
|
| — |
|
|
| 8,883 |
|
U.S. Government agencies |
|
| — |
|
|
| 141,143 |
|
|
| — |
|
|
| 141,143 |
|
|
| $ | 11,109 |
|
| $ | 233,878 |
|
| $ | — |
|
| $ | 244,987 |
|
|
| Fair Value Measurements as of December 31, 2020 Using: |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
| $ | 19,277 |
|
| $ | — |
|
| $ | — |
|
| $ | 19,277 |
|
Commercial paper |
|
| — |
|
|
| 1,000 |
|
|
| — |
|
|
| 1,000 |
|
Corporate bonds |
|
| — |
|
|
| 950 |
|
|
| — |
|
|
| 950 |
|
Canadian Government agencies |
|
| — |
|
|
| 2,347 |
|
|
| — |
|
|
| 2,347 |
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
| — |
|
|
| 34,471 |
|
|
| — |
|
|
| 34,471 |
|
Corporate bonds |
|
| — |
|
|
| 26,857 |
|
|
| — |
|
|
| 26,857 |
|
Municipal bonds |
|
| — |
|
|
| 1,090 |
|
|
| — |
|
|
| 1,090 |
|
Canadian Government agencies |
|
| — |
|
|
| 9,457 |
|
|
| — |
|
|
| 9,457 |
|
U.S. Government agencies |
|
| — |
|
|
| 137,089 |
|
|
| — |
|
|
| 137,089 |
|
|
| $ | 19,277 |
|
| $ | 213,261 |
|
| $ | — |
|
| $ | 232,538 |
|
Duringof which the six months ended June 30, 2021first two are considered observable and the year ended December 31, 2020, there were no transfers between Level 1, Level 2 and Level 3.last is considered unobservable:
|
|
Investments consisted of the following (in thousands):
|
| June 30, 2021 |
| |||||
|
| Amortized Cost |
|
| Fair Value |
| ||
Due within one year or less |
| $ | 150,599 |
|
| $ | 150,904 |
|
Due after one year through three years |
|
| 81,942 |
|
|
| 81,974 |
|
|
| $ | 232,541 |
|
| $ | 232,878 |
|
|
| December 31, 2020 |
| |||||
|
| Amortized Cost |
|
| Fair Value |
| ||
Due within one year or less |
| $ | 131,857 |
|
| $ | 131,882 |
|
Due after one year through three years |
|
| 77,063 |
|
|
| 77,082 |
|
|
| $ | 208,920 |
|
| $ | 208,964 |
|
As of June 30, 2021, the amortized cost and estimated fair value of investments, by contractual maturity, was as follows (in thousands):
|
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
|
| Current |
|
| Non-Current |
| ||||||
Commercial paper |
| $ | 29,492 |
|
| $ | 3 |
|
| $ | — |
|
| $ | 29,495 |
|
| $ | 29,495 |
|
| $ | — |
|
Corporate bonds |
|
| 36,174 |
|
|
| 115 |
|
|
| (10 | ) |
|
| 36,279 |
|
|
| 25,387 |
|
|
| 10,892 |
|
Municipal bonds |
|
| 17,082 |
|
|
| 1 |
|
|
| (5 | ) |
|
| 17,078 |
|
|
| 12,464 |
|
|
| 4,614 |
|
Canadian Government agencies |
|
| 8,606 |
|
|
| 277 |
|
|
| — |
|
|
| 8,883 |
|
|
| 6,623 |
|
|
| 2,260 |
|
U.S. Government agencies |
|
| 141,187 |
|
|
| 11 |
|
|
| (55 | ) |
|
| 141,143 |
|
|
| 76,935 |
|
|
| 64,208 |
|
|
| $ | 232,541 |
|
| $ | 407 |
|
| $ | (70 | ) |
| $ | 232,878 |
|
| $ | 150,904 |
|
| $ | 81,974 |
|
As of December 31, 2020, the amortized cost and estimated fair value of investments, by contractual maturity, was as follows (in thousands):
|
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
|
| Current |
|
| Non-Current |
| ||||||
Commercial paper |
| $ | 34,474 |
|
| $ | 1 |
|
| $ | (4 | ) |
| $ | 34,471 |
|
| $ | 34,471 |
|
| $ | — |
|
Corporate bonds |
|
| 26,855 |
|
|
| 22 |
|
|
| (20 | ) |
|
| 26,857 |
|
|
| 9,446 |
|
|
| 17,411 |
|
Municipal bonds |
|
| 1,090 |
|
|
| — |
|
|
| — |
|
|
| 1,090 |
|
|
| 1,090 |
|
|
| — |
|
Canadian Government agencies |
|
| 9,405 |
|
|
| 52 |
|
|
| — |
|
|
| 9,457 |
|
|
| 6,154 |
|
|
| 3,303 |
|
U.S. Government agencies |
|
| 137,096 |
|
|
| 8 |
|
|
| (15 | ) |
|
| 137,089 |
|
|
| 80,721 |
|
|
| 56,368 |
|
|
| $ | 208,920 |
|
| $ | 83 |
|
| $ | (39 | ) |
| $ | 208,964 |
|
| $ | 131,882 |
|
| $ | 77,082 |
|
|
|
Prepaid expenses and other current assets consisted of the following (in thousands):
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||
Prepaid external research and development expenses |
| $ | 3,962 |
|
| $ | 1,606 |
|
Prepaid insurance |
|
| 18 |
|
|
| 2,067 |
|
Prepaid software subscriptions |
|
| 410 |
|
|
| 146 |
|
Income tax receivable |
|
| 291 |
|
|
| — |
|
Interest receivable |
|
| 575 |
|
|
| 504 |
|
Other receivable due from AstraZeneca |
|
| 162 |
|
|
| — |
|
Canadian harmonized sales tax receivable |
|
| 202 |
|
|
| 290 |
|
Other |
|
| 227 |
|
|
| 727 |
|
|
| $ | 5,847 |
|
| $ | 5,340 |
|
|
|
Accrued expenses consisted of the following (in thousands):
|
| June 30, 2021 |
|
| December 31, 2020 |
| ||
Accrued employee compensation and benefits |
| $ | 2,420 |
|
| $ | 2,551 |
|
Accrued external research and development expenses |
|
| 2,167 |
|
|
| 1,037 |
|
Accrued professional and consulting fees |
|
| 825 |
|
|
| 1,023 |
|
Other |
|
| 270 |
|
|
| 48 |
|
|
| $ | 5,682 |
|
| $ | 4,659 |
|
|
|
Common Shares
On June 19, 2020, the Company effected a one-for-5.339 reverse share split of its issued and outstanding common shares and a proportional adjustmentPrior to the existing conversion ratios for each classsettlement of the Company’s Preferred Shares and Preferred Exchangeable Shares. Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse share split and adjustment of the preferred share conversion ratios.
On June 30, 2020,tranche right liability and prior to the Company closed its IPO of common shares and issued and sold 12,500,000 shares of common shares at a public offering price of $17.00 per share, resulting in net proceeds of approximately $193.1 million after deducting underwriting fees and offering costs.
Upon the closing of the IPO, all outstanding voting and non-voting common shares were converted to a single class of common shares authorized by the Company’s articles of the corporation, as amended and restated.
As of June 30, 2021, the Company’s articles of the corporation, as amended and restated, authorized the Company to issue unlimited common shares, each with no par value per share.
Each common share entitles the holder to one vote on all matters submitted to a voteconversion of the Company’s shareholders. Common shareholderspreferred share warrant liability, these instruments were carried at fair value, determined according to Level 3 inputs in the fair value hierarchy described above (see Note 4). The Company’s cash equivalents and investments are entitled to receive dividends, if any, as may be declared by the board of directors. Through June 30, 2021, 0 cash dividends had been declared or paid by the Company.
Convertible Preferred Shares
Priorcarried at fair value, determined according to the IPO,fair value hierarchy described above (see Note 4). The carrying values of the Company issued Class A convertible preferred shares (the “Class A preferred shares”)Company’s amounts due for refundable investment tax credits and Canadian harmonized sales tax, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these liabilities.
Preferred Share Tranche Right Liability
The subscription agreements for the Company’s Class B convertible preferred shares (see Note 8) and its Irish subsidiary’s Class B preferred exchangeable shares (see Note 8) provided investors the right, or obligated investors, to participate in subsequent offerings of Class B convertible preferred shares or Class B preferred exchangeable shares together with Class B special voting shares in the event that specified development or regulatory milestones were achieved (the “Class B preferred shares” and, together with the Class A preferred shares, the “Preferred Shares”share tranche right liability”). As of December 31, 2020, the Company’s articles of the corporation, as amended and restated, authorized the Company to issue an aggregate of 132,207,290 Preferred Shares, respectively, each with no par value per share.
In March 2019, the Company completed its first closing of its Class B preferred shares and issued and sold 30,207,129 Class B preferred shares at a price of $1.5154 per share for gross proceeds of $45.8 million (the “2019 Preferred Share Financing”).
In January 2020, the Company executed the First Amendment to the Class B Subscription Agreement (“Amended Class B Subscription Agreement”) whereby the Canada Pension Plan Investment Board (“CPP”) agreed to purchase an aggregate of $20.0 million of Class B preferred shares, at a price of $1.5154 per share, in two tranches. In January 2020, the Company issued and sold to CPP 6,598,917 Class B preferred shares, resulting in gross proceeds of $10.0 million (the “Additional Class B Closing”). The Company incurred issuance costs of $0.1 million in connection with this transaction.
Theclassified these preferred share tranche rights and preferences of the Class Bas a liability on its consolidated balance sheets as each preferred shares sold under the Additional Class B Closing were the same as the rights and preferences of the Class B preferred shares issued and sold by the Company in March 2019. Accordingly, under the terms of the Amended Class B Subscription Agreement, upon the earlier occurrence of a specified development or specified regulatory milestone, CPPshare tranche right was obligated to purchase an additional 6,598,917 Class B preferred shares at a price of $1.5154 per share. The Company concluded that these rights or obligations of CPP to participate in the Milestone Financing of Class B preferred shares met the definition of a freestanding financial instrument that wasmay have required to be recorded as a liability at fair value as (i) the instruments are legally detachable and separately exercisable from the Class B preferred shares and (ii) the rights will require the Company to transfer assets upon future closingsthe achievement of specified milestone events. Each preferred share tranche right liability was initially recorded at fair value upon the Class Bdate of issuance of each preferred shares.
Uponshare tranche right and was subsequently remeasured to fair value at each reporting date. Changes in the Additional Class B Closing in January 2020, the Company recorded an additional liability forfair value of the preferred share tranche right liability were recognized as a component of $1.1 millionother income (expense) in the consolidated statement of operations and a corresponding reduction tocomprehensive loss. Changes in the carryingfair value of the Class B preferred shares.share tranche right liability were recognized until the respective preferred share tranche right was settled upon achievement of the specified milestones or it expired.
InOn May 15, 2020, the Company achieved the specified regulatory milestone associated with the Class B preferred share tranche right (see Note 8), which triggered the requirement of the Class B shareholders to participate in the Milestone Financing. Upon closing of the Milestone Financing on June 2, 2020, the Company issued and sold 36,806,039 Class B preferred shares at a price of $1.5154 per share and 4,437,189 Class B special voting shares at a price of $0.000001 per share and the Company’s Irish subsidiary issued and sold 4,437,189 Class B preferred exchangeable shares at a price of $1.5154 per share, for aggregate gross proceeds of $55.8$62.5 million.
The Class B preferred share tranche right liability (see Note 8) was settled in connection with the achievement of the regulatory milestone associated with the Class B preferred share tranche right. Specifically, the fair value of the Class B preferred share tranche right liability was remeasured for the last time as of the Milestone Financing closing date, resulting in the Company recognizing a loss in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2020 of $32.7 million for the change in the fair value of the tranche right liability between December 31, 2019 and June 2, 2020. Immediately thereafter, the balance of the Class B preferred share tranche right liability of $39.6 million was reclassified to Class B convertible preferred shares in an amount of $35.3 million and to non-controlling interest in Fusion Pharmaceuticals (Ireland) Limitedthe Company’s Irish subsidiary in an amount of $4.3 million on the consolidated balance sheet. For the three and sixnine months ended JuneSeptember 30, 2020, the Company recognized lossesa loss of $31.6 million and $32.7 million respectively, in the condensed consolidated statement of operations and comprehensive loss for the change in the fair value of the tranche right liability.
Upon the closing of the IPO, the Company converted the then outstanding Class A and Class B preferred shares into common shares at a conversion ratio of 5.339 Preferred Share Warrant Liability
The Company classified warrants to one common share.
Preferred Exchangeable Shares and Special Voting Shares
In connection with each issuance and sale ofpurchase its Class Aconvertible preferred shares and Class Bwarrants to purchase preferred exchangeable shares of the Company’s Irish subsidiary issued and sold Class A and Class B preferred exchangeable shares (together, the “Preferred Exchangeable Shares”) to investors. Simultaneously with the issuance and sale of the Preferred Exchangeable Shares, the Company issued and soldas a liability on its Class A and Class B special voting shares (together, the “Special Voting Shares”) to the same investors. Prior to the IPO, the Company’s Irish
subsidiary’s amended constitution authorized it to issue an aggregate of 28,874,378 Preferred Exchangeable Shares and 29,747,987 Preferred Exchangeable Shares, respectively, with a par value of $0.001 per share. Prior to the IPO, the Company’s articles of the corporation,consolidated balance sheets as amended and restated, authorizedthese warrants were freestanding financial instruments that may have required the Company to issue an aggregate of 28,874,378 Special Voting Shares and 29,747,987 Special Voting Shares, respectively, with a cash redemption value of $0.000001 per share.
In March 2019, in connection with the first closing of Class B preferred shares, as described above, the Company’s Irish subsidiary issued and sold 4,437,189 Class B preferred exchangeable shares at a price of $1.5154 per share and the Company issued and sold 4,437,189 Class B special voting shares at a price of $0.000001 per share for aggregate gross proceeds of $6.7 million (the “2019 Preferred Exchangeable Share Financing”)transfer assets upon exercise (see Note 8).
In May 2020, the Company achieved the specified regulatory milestone associated with the Class B The preferred share tranche right,warrant liability, which triggered the requirementconsisted of the Class B shareholders to participate in the Milestone Financing. Upon closing of the Milestone Financing on June 2, 2020, the Company issued and sold 4,437,189 Class B special voting shares at a price of $0.000001 per share and the Company’s Irish subsidiary issued and sold 4,437,189 Class B preferred exchangeable shares at a price of $1.5154 per share, for aggregate gross proceeds of $6.7 million.
Upon the closing of the IPO, the Company converted all of the outstanding Class A and Class B preferred exchangeable shares and Special Voting Shares into Class A and Class B preferred shares on a one-for-one basis then converted the Class A and Class B preferred shares into common shares at a conversion ratio of 5.339 Preferred Share to one common share.
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In January 2020, in conjunction with the Company’s execution of the Amended Class B Subscription Agreement, the Company issued to the existing holders of Class B convertible preferred shares (excluding the investor in the Additional Class B Closing in January 2020) warrants to purchase 3,126,391 Class B convertible preferred shares, at an exercise price of $1.5154 per share, and Fusion Pharmaceuticals (Ireland) Limited issued to the existing holders of Class B preferred exchangeable shares warrants to purchase 873,609 Class B preferred exchangeable shares, at an exercise price of $1.5154 per share (collectively the “Preferred Share Warrants”). If the warrants to purchase Class B preferred exchangeable shares are exercised, at that same time, the shareholder is obligated to purchase from the Company an equal number of Class B special voting shares at a price of $0.000001 per share. The Preferred Share Warrants were issued for no consideration, and the specified exercise prices of each warrant are subject to adjustment for share dividends, share splits, combination or other similar recapitalization transactions as provided under the terms of the warrants.
The Preferred Share Warrants were immediately exercisable and expire two years from the date of issuance or upon the earlier occurrence of specified qualifying events, which include the consummation of a Deemed Liquidation Event and the closing of a qualifying share sale (as defined in the articles of the corporation, as amended and restated). Upon the closing of a qualified public offering, on specified terms, all outstanding warrants to purchase Class B convertible preferred shares of the Company and warrants to purchase Class B preferred exchangeable shares of Fusion Pharmaceutics (Ireland) Limited will become warrants to purchase common sharesthe Company’s Irish subsidiary, were initially recorded at fair value upon the date of the Company.
Upon issuance of the Preferred Share Warrants in January 2020, the Company recorded on its consolidated balance sheet a preferred shareeach warrant liability of $1.4 million, equaland were subsequently remeasured to the issuance-date fair value of the Preferred Share Warrants, as well as a corresponding decrease of $1.3 million to additional paid-in capital, reducing that to zero, and an increase of $0.1 million to accumulated deficit for the remainder.
The issuance of the Preferred Share Warrants was treated as a deemed dividend to existing preferred shareholders for purposes of the Company’s calculation of net loss per share attributable to common shareholders, and, as such, the aggregate value of the dividend to existing preferred shareholders was deducted from the Company’s net loss when computing net loss per share attributable to common shareholders (see Note 12). The Company remeasuresat each reporting date. Changes in the fair value of the preferred share warrant liability associated with the Preferred Share Warrants at each reporting date and records any adjustmentswere recognized as a component of other income (expense) in the consolidated statementsstatement of operations and comprehensive loss. Changes in the fair value of the preferred share warrant liability were recognized until each respective warrant was exercised, expired or qualified for equity classification.
Upon the closing of the IPO, the warrants to purchase 3,126,391 of its convertible preferred shares and warrants to purchase 873,609 preferred exchangeable shares of the Company’s Irish subsidiary were converted into warrants to purchase 749,197 shares of the Company’s common shares at an exercise price of $8.10 per share.shares. As a result, the warrant liability was remeasured a final time on the closing date of the IPO and reclassified to shareholders’ equity (deficit) as the warrants qualify for equity classification.
Leases
Prior to January 1, 2021, the Company accounted for leases in accordance with ASC 840, Leases. At lease inception, the Company determined if an arrangement was an operating or capital lease. For the three and six months ended June 30, 2020,operating leases, the Company recognized lossesrent expense,
inclusive of $6.1 millionrent escalation, holidays and $6.4 million, respectively,lease incentives, on a straight-line basis over the lease term. The difference between rent expense recorded and the amount paid was charged to deferred rent. The Company presented lease incentives as deferred rent and amortized the incentives as a componentreduction to rent expense on a straight-line basis over the lease term. The Company classified deferred rent as current and noncurrent liabilities based on the portion of other income (expense)the deferred rent that was scheduled to mature within the proceeding twelve months.
Effective January 1, 2021, the Company accounts for leases in accordance with ASC 842, Leases. At contract inception, the Company determines if an arrangement is or contains a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If determined to be or contain a lease, the lease is assessed for classification as either an operating or finance lease at the lease commencement date, defined as the date on which the leased asset is made available for use by the Company, based on the economic characteristics of the lease. For each lease with a term greater than twelve months, the Company records a right-of-use asset and lease liability.
A right-of-use asset represents the economic benefit conveyed to the Company by the right to use the underlying asset over the lease term. A lease liability represents the obligation to make lease payments arising from the lease. The Company records amortization of operating right-of-use assets and accretion of lease liabilities as a single lease cost on a straight-line basis over the lease term. The Company elected the practical expedient to not separate lease and non-lease components and therefore measures each lease payment as the total of the fixed lease and associated non-lease components. Lease liabilities are measured at the lease commencement date and calculated as the present value of the future lease payments in the contract using the rate implicit in the contract, when available. If an implicit rate is not readily determinable, the Company uses its incremental borrowing rate measured as the rate at which the Company could borrow, on a fully collateralized basis, a commensurate loan in the same currency over a period consistent with the lease term at the commencement date. Right-of-use assets are measured as the lease liability plus initial direct costs and prepaid lease payments, less lease incentives granted by the lessor. The lease term is measured as the noncancelable period in the contract, adjusted for any options to extend or terminate when it is reasonably certain the Company will extend the lease term via such options based on an assessment of economic factors present as of the lease commencement date. The Company elected the practical expedient to not recognize leases with a lease term of twelve months or less.
The Company assesses its right-of-use assets for impairment consistent with the assessment performed for long-lived assets used in operations. If an impairment is recognized on operating lease right-of-use assets, the lease liability continues to be recognized using the same effective interest method as before the impairment and the operating lease right-of-use asset is amortized over the remaining term of the lease on a straight-line basis.
The Company’s operating leases are presented in the condensed consolidated statement of operationsbalance sheet as operating lease right-of-use assets, classified as noncurrent assets, and comprehensive loss to reflect an increase in fair value of the Preferred Share Warrant.
On August 17, 2020, a holder of common share warrants exercised 97,381 common share warrants through a cashless exerciseoperating lease liabilities, classified as current and the Company issued 38,340 common shares with the remaining 59,041 warrants being cancelled to settle the exercise price. As of June 30, 2021, 651,816 common share warrants remained outstanding.
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2020 Stock Option and Incentive Plan
On June 18, 2020, the Company’s board of directors adopted the 2020 Stock Option and Incentive Plan (the “2020 Plan”), which became effective on June 24, 2020. The 2020 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock units, restricted stock awards, unrestricted stock awards, cash-based awards and dividend equivalent rights to the Company’s officers, employees, non-employee directors and consultants. The number of shares initially reserved for issuance under the 2020 Plan was 4,273,350, which was cumulatively increased on January 1, 2021 and shall be cumulatively increased each January 1 thereafter by 4% of the number of the Company’s common shares outstanding on the immediately preceding December 31 or such lesser number of shares determined by the Company’s compensation committee of the board of directors. The common shares underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of shares, expire or are otherwise terminated (other than by exercise) under the 2020 Plan and the 2017 Plan will be added back to the common shares available for issuance under the 2020 Plan. The total number of common shares reserved for issuance under the 2020 Plan was 6,126,083 shares as of June 30, 2021.
As of June 30, 2021, 2,712,551 shares, remained available for future grant under the 2020 Plan. Shares that are expired, forfeited, canceled or otherwise terminated without having been fully exercised will be available for future grant under the 2020 Plan.
2017 Equity Incentive Plan
The Company’s 2017 Equity Incentive Plan (the “2017 Plan”) provides for the Company to grant incentive stock options or nonqualified stock options, restricted share awards and restricted share units to employees, officers, directors and non-employee consultants of the Company.
As of June 30, 2021 and December 31, 2020, 0 shares remained available for future grant under the 2017 Plan. Shares that are expired, forfeited, canceled or otherwise terminated without having been fully exercised will be available for future grant under the 2020 Plan.
2020 Employee Share Purchase Plan
On June 18, 2020, the Company’s board of directors adopted the 2020 Employee Share Purchase Plan (the “ESPP”), which became effective on June 24, 2020. A total of 450,169 common shares were reserved for issuance under this plan. In addition, the number of common shares that may be issued under the ESPP was automatically increased on January 1, 2021 and shall be automatically increased each January 1 thereafter by the lesser of (i) 900,338 common shares, (ii) 1% of the number of the Company’s common shares outstanding on the immediately preceding December 31 and (iii) such lesser number of shares as determined by the Company’s compensation committee of the board of directors. The total number of common shares reserved for issuance under the ESPP was 867,427 shares as of June 30, 2021.
As of June 30, 2021, 0 shares were issued under the ESPP.
Stock Option Valuation
The fair value of stock option grants is estimated using the Black-Scholes option-pricing model. The Company historically has been a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected share volatilitynoncurrent liabilities based on the historical volatility ofdiscounted lease payments to be made within the proceeding twelve months. Variable costs associated with a publicly traded set of peer companieslease, such as maintenance and expects to continue to do so until such time as it has adequate historical data regardingutilities, are not included in the volatility of its own traded share price. For options with service-based vesting conditions, the expected termmeasurement of the Company’s stock options has been determined utilizinglease liabilities and right-of-use assets but rather are expensed when the “simplified” method for awards that qualify as “plain-vanilla” options. The expected termevents determining the amount of stock options granted to non-employee consultants is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted:
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| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Risk-free interest rate |
|
| 1.00 | % |
|
| 0.43 | % |
|
| 0.77 | % |
|
| 0.70 | % |
Expected term (in years) |
|
| 5.8 |
|
|
| 6.0 |
|
|
| 6.1 |
|
|
| 6.0 |
|
Expected volatility |
|
| 67.0 | % |
|
| 66.4 | % |
|
| 66.8 | % |
|
| 65.5 | % |
Expected dividend yield |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
Stock Options
The following table summarizes the Company’s stock option activity since December 31, 2020:
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| Number of Shares |
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| Weighted- Average Exercise Price |
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| Weighted- Average Remaining Contractual Term |
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| Aggregate Intrinsic Value |
| ||||
|
|
|
|
|
|
|
|
|
| (in years) |
|
| (in thousands) |
| ||
Outstanding as of December 31, 2020 |
|
| 5,607,244 |
|
| $ | 6.45 |
|
|
| 8.2 |
|
| $ | 36,628 |
|
Granted |
|
| 1,941,950 |
|
|
| 11.03 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (295,302 | ) |
|
| 1.15 |
|
|
|
|
|
|
|
|
|
Forfeited/cancelled |
|
| (204,182 | ) |
|
| 12.26 |
|
|
|
|
|
|
|
|
|
Outstanding as of June 30, 2021 |
|
| 7,049,710 |
|
| $ | 7.77 |
|
|
| 8.3 |
|
| $ | 20,357 |
|
Vested and expected to vest as of June 30, 2021 |
|
| 6,913,110 |
|
| $ | 7.68 |
|
|
| 8.3 |
|
| $ | 20,357 |
|
Options exercisable as of June 30, 2021 |
|
| 2,575,676 |
|
| $ | 3.66 |
|
|
| 6.9 |
|
| $ | 14,137 |
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The aggregate intrinsic value of options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common shares for those options that had exercise prices lower than the fair value of the Company’s common shares. The intrinsic value for stock options exercised during the six months ended June 30, 2021 was $2.5 million. The weighted-average grant-date fair value of stock options granted during the six months ended June 30, 2021 and 2020 was $6.60 and $6.81 per share, respectively.
Share-based Compensation
Share-based compensation expense was classified in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):
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| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Research and development expenses |
| $ | 612 |
|
| $ | 145 |
|
| $ | 1,185 |
|
| $ | 218 |
|
General and administrative expenses |
|
| 1,533 |
|
|
| 281 |
|
|
| 2,678 |
|
|
| 566 |
|
|
| $ | 2,145 |
|
| $ | 426 |
|
| $ | 3,863 |
|
| $ | 784 |
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As of June 30, 2021, total unrecognized share-based compensation expense related to unvested share-based awards was $24.1 million, which is expectedvariable consideration to be recognized over a weighted-average period of 2.8 years. Additionally, as of June 30, 2021, the Company has unrecognized share-based compensation expense related to unvested stock options with performance-based vesting conditions for which performance has not been deemed probable of $1.0 million. paid have occurred.
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License Agreement with the Centre for ProbeResearch, Development and Commercialization Inc.
In November 2015, the Company entered into a license agreement with the Centre for Probe DevelopmentManufacturing Contract Costs and Commercialization Inc. (“CPDC”), a related party (see Note 15) (the “CPDC Agreement”). Under the agreement, the Company was granted an exclusive, sublicensable, nontransferable, worldwide license under CPDC’s patent rights related to CPDC’s radiopharmaceutical linker technology to develop, market, make, use and sell certain products for all disease indications and uses in humans, whether diagnostic or therapeutic. The Company has the right to grant sublicenses of its rights. The CPDC Agreement was amended in 2017; however, there were no material changes to the terms of the CPDC Agreement. Also in 2017, the Company entered into a second license agreement with CPDC, under which the Company was granted an exclusive, sublicensable, worldwide license under CPDC’s patent rights related to certain CPDC radiopharmaceutical linker technology to develop, market, make, use and sell certain products for all disease indications and uses in humans. The Company has the right to grant sublicenses of its rights.Accruals
The Company has no obligations under any of the agreements with CPDC to make any milestone payments or to pay any royalties or annual maintenance fees to CPDC.
During the three and six months ended June 30, 2021 and 2020, the Company did 0t make any payments to CPDC or recognize any research and development expenses under the license agreements with CPDC.
License Agreement with ImmunoGen, Inc.
In December 2016, the Company entered into a license agreement with ImmunoGen, Inc. (“ImmunoGen”) (the “ImmunoGen Agreement”). Under the agreement, the Company was granted an exclusive, sublicensable, worldwide license under ImmunoGen’s patent rights to use, develop, manufacture and commercialize any radiopharmaceutical conjugate that includes a certain compound and any resulting commercialized products. The Company has the right to grant sublicenses of its rights.
Under the ImmunoGen Agreement, the Company paid an upfront fee of $0.2 million to ImmunoGen. In addition, the Company is obligated to make aggregate milestone payments to ImmunoGen of up to $15.0 million upon the achievement of specifiedvarious research, development and regulatory milestones and of up to $35.0 million upon the achievement of specified sales milestones. The Company is also obligated to pay tiered royalties of a low to mid single-digit percentage based on annual net sales by the Company and any of its affiliates and sublicensees. Royalties will be paid by the Company on a country-by-country basis beginning upon the first commercial sale in such country until ten years following the date of the first commercial sale in the United States and five years following the date of the first commercial sale in all non-U.S. countries. In addition, the Company is responsible for all costs and expenses incurred related to the development, manufacture, regulatory approval and commercialization of all licensed products.
Prior to regulatory approval of a licensed product in any country, the Company has the right to terminate the agreement upon 90 days’ prior written notice to ImmunoGen. Upon receipt of its first regulatory approval of a licensed product in any country, the Company has the right to terminate the agreement upon 180 days’ prior written notice to ImmunoGen. If the Company or ImmunoGen fails to complymanufacturing contracts with any of its obligations or otherwise breaches the agreement, the other party may terminate the agreement. The ImmunoGen Agreement expires upon the expiration date of the last-to-expire royalty term.
During the three and six months ended June 30, 2021 and 2020, the Company did 0t make any payments to ImmunoGen or recognize any research and development expenses under the ImmunoGen Agreement.
Asset Acquisition from and License Agreement with MediaPharma S.r.l.
In May 2019, the Company and MediaPharma S.r.l. (“MediaPharma”) entered into an asset acquisition and license agreement. Under the agreement, the Company purchased all right, title and interest to MediaPharma’s, and any of its affiliates’ and sublicensees’, patents to perform research and to develop, manufacture and commercialize a specified antibody that binds to targets for the prevention, treatment and diagnosis of all diseases and conditions. The Company accounted for this purchase as an asset acquisition. At the same time, the Company granted MediaPharma an exclusive, fully paid, worldwide, sublicensable license to use the specified compound for research, development, manufacturing and commercialization of a bispecific antibody drug conjugate, but not for use as a radiopharmaceutical.
In connection with the asset acquisition, the Company paid an upfront fee of $0.2 million to MediaPharma. In addition, the Company is obligated to make aggregate milestone payments to MediaPharma of up to $1.5 million upon the achievement of specified development milestones and of up to $23.0 million upon the achievement of specified sales milestones. The Company is also obligated to pay royalties of a low single-digit percentage based on annual net sales by the Company. Royalties will be paid by the Company on a country-by-country basis beginning upon the first commercial sale in such country and will expire, on a country-by-country basis, upon the earlier of (i) eight years from the first commercial sale of a licensed product in such country, (ii) the date upon which all issued patents under the agreement have expired or (iii) the date upon which a product highly similar in composition to the licensed product and having no clinically meaningful differences is sold or marketed for sale in such country by a third party.
The Company is not entitled to any payments from MediaPharma for use of the license to the specified compound granted to MediaPharma.
During the three and six months ended June 30, 2021 and 2020, the Company did 0t make any payments to MediaPharma or recognize any research and development expenses under the MediaPharma Agreement.
Asset Acquisition from Rainier Therapeutics, Inc. and License Agreement with Genentech, Inc.
On March 10, 2020 (the “Closing”), the Company and Rainier Therapeutics, Inc. (“Rainier”) entered into an asset acquisition agreement (the “Rainier Agreement”). Under the agreement, the Company purchased all rights, title and interest to Rainier’s, and any of its affiliates’ and sublicensees’, patentsinstitutions and other tangiblecompanies. These agreements are generally cancelable, and intangible assets to perform research and to develop, manufacture and commercialize a specified compound of antibody molecules that bind to targets for the prevention, treatment and diagnosis of all diseases and conditions only using such compound as an antibody drug conjugate. The Company concluded to account for this purchase as an asset acquisition as substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset, the license rights.
In connection with the asset acquisition, the Company paid an upfront fee of $1.0 million to Rainier and recognized this amount as research and development expense in the condensed consolidated statement of operations and comprehensive loss during the three months ended March 31, 2020, as the IPR&D acquired had no alternative future use as of the acquisition date.
Unless the Rainier Agreement was terminated pursuant to its terms, which termination initially could not have occurred later than eight months following the Closing (the “Outside Date”), the Company was obligated to pay Rainier an additional amount of $3.5 million and to issue 313,359 of the Company’s common shares on the Outside Date. If the Rainier Agreement was not terminated by the Outside Date, the Company is also obligated to make aggregate milestone payments to Rainier of up to $22.5 million and to issue up to 156,679 of the Company’s common shares upon the achievement of specified development and regulatory milestones, of which a $2.0 million milestone payment and the issuance of 156,679 common sharesrelated costs are due upon the first patient dosed in a Phase 1 study of FPI-1966, and of up to $42.0 million upon the achievement of specified sales milestones.
In the event the Company enters into a transaction with a non-affiliated party relating to the license or sale of substantially all the Company’s rights to develop the specified compound of antibody molecules, the Company will be obligated to pay Rainier a specified percentage of the revenue from such transaction, in an amount ranging from 10% to 30%, based on how long after the Closing the transaction takes place.
The Rainier Agreement could have been terminated at any time prior to the Outside Date upon 30 days’ notice by the Company to Rainier or upon the mutual written consent of both parties. On October 8, 2020, the Company and Rainier entered into a first amendment to the Rainier Agreement (the “First Amended Rainier Agreement”) to extend certain terms of the Rainier Agreement. Specifically, the Outside Date was amended such that termination may not occur later than eleven months following the Closing, or February 10, 2021 (the “Revised Outside Date”). On February 8, 2021, the Company and Rainier entered into a second amendment to the First Amended Rainier Agreement, as amended (the “Second Amended Rainier Agreement”). Pursuant to the Second Amended Rainier Agreement, the Outside Date was further amended such that termination may not occur later than July 1, 2021, and such amendment was made in consideration for early payment of the additional $3.5 million owed to Rainier which the Company paid and recorded as research and development expense during the three months ended March 31, 2021. On May 26, 2021, theexpenses as incurred. The Company notified Rainier of its intent to continuerecords accruals for estimated ongoing research, development of the asset and issued 313,359 of its common shares to Rainier on July 1, 2021.
During the three months ended June 30, 2021, the Company recognized $2.6 million of research and development expense associatedmanufacturing costs. When billing terms under these contracts do not coincide with the issuancetiming of 313,359 of its common shares onwhen the Outside Date, as amended, pursuant to the Second Amended Rainier Agreement. During the six months ended June 30, 2021, the Company recognized $6.1 million of research and development expense associated with the payment of $3.5 million and the issuance of 313,359 of its common shares as noted above. During the six months ended June 30, 2020, the Company paid an upfront fee of $1.0 million to Rainier and recognized this as an expense as noted above.
In connection with the Rainier Agreement, in March 2020, the Company was assigned all of Rainier’s rights and obligations under an exclusive license agreement between BioClin Therapeutics, Inc. and Genentech, Inc. (“Genentech”) (the “Genentech License Agreement”). Pursuant to the Genentech License Agreement, the Company has an exclusive, worldwide, sublicensable license to make, use, research, develop, sell and import certain intellectual property and technology of Genentech relating to a specified antibody and any mutant antibody thereof (the “Licensed Antibodies”), including any products that contain a Licensed Antibody as an active ingredient (the “Products”), for all human uses.
Pursuant to the Genentech License Agreement,work is performed, the Company is obligatedrequired to use commercially reasonable effortsmake estimates of outstanding obligations to developthose third parties as of period end. Any accrual estimates are based on a number of factors, including the Company’s knowledge of the progress towards completion of the research, development and commercialize at least one Productmanufacturing activities, invoicing to date under the contracts, communication from the research institutions and other companies of any actual costs incurred during the period that have not yet been invoiced and the Company is solely responsible forcosts included in the costs associated withcontracts. Significant judgments and estimates may be made in determining the development, manufacturing, regulatory approval and commercializationaccrued balances at the end of any Products.reporting period. Actual results could differ from the estimates made by the Company. The manufacture of the antibody by any third-party contract manufacturing organization must be approved in advance by Genentech. Additionally, Genentech retains the right to use the Licensed Antibodies solely to research and develop molecules other than the Licensed Antibodies.
Under Genentech License Agreement, the Company is obligated to make aggregate milestone payments to Genentech of up to $44.0 million upon the achievement of specified sales milestones. The Company is also obligated to pay to Genentech tiered royalties of a mid to high single-digit percentage based on annual net saleshistorical accrual estimates made by the Company have not been materially different from the actual costs.
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in shareholders’ equity (deficit) that result from transactions and any of its affiliates and sublicensees, for the specified compound of antibody molecules and of a mid to high single-digit percentage based on annual net sales by the Company, and any of its affiliates and sublicensees, for anyeconomic events other compound containing mutant antibody molecules of the specified compound. In addition, the Company is obligated to pay to Genentech royalties of a low single-digit percentage based on quarterly net sales in any country in which the specified compound is not covered by a valid patent claim, andthan those sales will not be subject to the tiered royalties described above. All royalties may be reduced if the Company obtains a license under a third-party patent that includes the specified compound. Royalties will be paid by the Company on a country-by-country basis beginning upon the first commercial sale in such country until the later of (i) ten years following the date of the first commercial sale of a Product or (ii) the date the specified compound is no longer covered by an enforceable patent. Upon the expiration of the royalty term, the Company will have a fully paid-up license.
The Company has the right to terminate the Genentech License Agreement upon written notice to Genentech if the Company determines in its sole discretion that development or commercialization of Products is not economically or scientifically feasible or appropriate. In addition, if the Company or Genentech fails to comply with any of its obligations or otherwise breaches the agreement, the other party may terminate the agreement. The Genentech License Agreement expires on the date on which all obligations under the agreement related to milestone payments or royalties have passed or expired.
Duringshareholders. For the three and sixnine months ended JuneSeptember 30, 2021 and 2020, the Company did 0t make any payments to Genentech or recognize any researchunrealized gains and development expenses under the Genentech License Agreement.
Master Services and License Agreement with Yumab GmbH
On May 15, 2020, the Company entered intolosses on investments are included in other comprehensive income (loss) as a master services and license agreement with Yumab GmbH (“Yumab”) (the “Yumab Agreement”). Under the agreement, Yumab will assist the Company in discovering and developing certain antibodies from certain cell lines owned by Yumab. The Company plans to use the discovered antibodies in preclinical and clinical development. Under the Yumab Agreement, the Company is obligated to pay for services performed as defined in work orders under the agreement. In addition, the Company is obligated to make aggregate milestone payments to Yumabcomponent of up to $3.9 million upon the achievement of specified development and regulatory milestones.
During the three and six months ended June 30, 2021 and 2020, the Company did 0t make any payments to Yumab or recognize any research and development expenses under the Yumab Agreement.
Collaboration Agreement and Supply Agreement with TRIUMF Innovations, Inc.
On December 10, 2020, the Company entered into a Collaboration Agreement and Supply Agreement with TRIUMF Innovations Inc. and TRIUMF JV (collectively, “the TRIUMF entities”) for the development, production and supply of actinium-225 to the Company. Under the Collaboration Agreement, the Company is obligated to pay the TRIUMF entities an aggregate of $5.0 million CAD upon the achievement of certain milestones. The parties may also negotiate for a second phase of the collaboration whereby the Company would make an additional financial investment for the future development, manufacture and supply of actinium-225.
As of December 31, 2020, the TRIUMF entities had achieved certain milestones totaling $3.0 million CAD (equivalent to $2.3 million at the time of payment) which was paid during the six months ended June 30, 2021 and is being amortized as research and development expense over the period of performance by the TRIUMF entities. During the three and six months ended June 30, 2021,shareholders’ equity (deficit) until realized.
the Company recognized the amortization of $0.5 million and $0.9 million, respectively, as research and development expense. The Company recorded the remaining $1.4 million of these milestone payments in prepaid expenses and other current assets as of June 30, 2021 based on its estimate of costs to be incurred over the 12 months following the balance sheet date.
Asset Acquisition from Ipsen Pharma SAS
On March 1, 2021, the Company and Ipsen Pharma SAS (“Ipsen”) announced that the parties had entered into an asset purchase agreement (the “Ipsen Agreement”) whereby the Company agreed to acquire Ipsen’s intellectual property and assets related to IPN-1087, a small molecule targeting neurotensin receptor 1 (“NTSR1”), a protein expressed on multiple solid tumor types. The Company intends to combine its expertise and proprietary TAT platform with IPN-1087 to create an alpha-emitting radiopharmaceutical targeting solid tumors expressing NTSR1. The Company and Ipsen submitted a pre-merger notification and report form with the United States Federal Trade Commission and the Antitrust Division of the United States Department of Justice in accordance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). The acquisition closed after completion of this antitrust review on April 1, 2021. The Company concluded to account for this purchase as an asset acquisition as substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset, the license rights.
Upon closing of the asset acquisition, the Company paid €0.6 million ($0.8 million at the date of payment) and issued an aggregate of 600,000 common shares to Ipsen under a share purchase agreement which was entered into concurrently with the Ipsen Agreement. Such common shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). The Company is also obligated to pay Ipsen up to an additional €67.5 million upon the achievement of certain development and regulatory milestones; low single digit royalties on potential future net sales; and up to €350.0 million in net sales milestones, in each case, relating to products covered by the asset purchase agreement. The Company is responsible for paying to a third-party licensor up to a total of €70.0 million in development milestones for up to three indications and mid to low double-digit royalties on potential future net sales of products covered by the license agreement.
During the three and six months ended June 30, 2021, the Company recognized $6.4 million of research and development expense associated with the issuance of 600,000 of its common shares upon closing pursuant to the Ipsen Agreement. Additionally, during the three and six months ended June 30, 2021, the Company paid $0.8 million which was recognized as research and development expense.
The Ipsen Agreement includes a royalty step down whereby royalties owed to Ipsen will be reduced by certain percentages not to exceed 50%, in the aggregate, of the royalty owed under certain circumstances relating to loss of patent exclusivity, loss of regulatory exclusivity or generics entering a market. Under the asset purchase agreement Ipsen has agreed not to develop a molecule that targets NTSR1 and combines at least one NTSR1 binding moiety and a radionuclide or cytotoxic agent until the earlier of (i) the seventh anniversary of the closing date or (ii) the date of data base lock after completion of the first phase 3 clinical trial for IPN-1087.
Agreement with Merck & Co.
On May 5, 2021, the Company entered into an agreement with two subsidiaries of Merck & Co. (“Merck”). Pursuant to the agreement, Merck will provide to the Company, at no cost, its anti-PD-1 (programmed death receptor-1) therapy, KEYTRUDA® (pembrolizumab) to evaluate in combination with the Company’s lead candidate, FPI-1434. The planned Phase 1 combination trial will evaluate safety, tolerability and pharmacokinetics of FPI-1434 in combination with pembrolizumab and is expected to initiate approximately six to nine months after achieving the recommended Phase 2 dose in the ongoing Phase 1 study of FPI-1434 monotherapy. Under the agreement, the Company will sponsor, fund and conduct the combination trial in accordance with an agreed-upon protocol and Merck agreed to manufacture and supply its compound, at its cost and for no charge to the Company, for use in the clinical trial.
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|
The Company is domiciled in Canada and is primarily subject to taxation in that country. During the three and six months ended June 30, 2021, the Company recorded no income tax benefits for the net operating losses incurred or for the research and development tax credits generated in Canada in each period due to its uncertainty of realizing a benefit from those items. During the three and six months ended June 30, 2021, the Company recorded a tax provision of less than $0.1 million related to income tax obligations of its operating company in the U.S., which typically generates a profit for tax purposes, partially offset by discrete stock compensation items arising during the period. During the three and six months ended June 30, 2020, the Company recorded a tax provision of $0.2 million related to income tax obligations of its operating company in the U.S., which generates a profit for tax purposes.
The Company’s tax provision and the resulting effective tax rate for interim periods is determined based upon its estimated annual effective tax rate (“AETR”), adjusted for the effect of discrete items arising in that quarter. The impact of such inclusions could result in a higher or lower effective tax rate during a particular quarter, based upon the mix and timing of actual earnings or losses versus annual projections. In each quarter, the Company updates its estimate of the annual effective tax rate, and if the estimated annual tax rate changes, a cumulative adjustment is made in that quarter. For the three and six months ended June 30, 2021 and 2020, the Company excluded Canada and Ireland from the calculation of the AETR as the Company anticipates an ordinary loss in this jurisdiction for which no tax benefit can be recognized.
The Company has evaluated the positive and negative evidence bearing upon its ability to realize its deferred tax assets, which primarily consist of net operating loss carryforwards. The Company has considered its history of cumulative net losses in Canada, estimated future taxable income and prudent and feasible tax planning strategies and has concluded that it is more likely than not that the Company will not realize the benefits of its Canadian deferred tax assets. As a result, as of June 30, 2021 and December 31, 2020, the Company has recorded a full valuation allowance against its net deferred tax assets in Canada.As a result of the decision to liquidate the Irish entity, the Irish deferred tax assets were reduced to 0 as of June 30, 2021 and December 31, 2020.
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Net Loss per Share Attributable
The Company follows the two-class method when computing net income (loss) per share as the Company has issued shares that meet the definition of participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to Common Shareholdersdividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common shareholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.
Basic and diluted net lossincome (loss) per share attributable to common shareholders was calculated as follows (in thousands, except share and per share amounts):
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (26,853 | ) |
| $ | (44,733 | ) |
| $ | (44,382 | ) |
| $ | (54,955 | ) |
Dividends paid to preferred shareholders in the form of warrants issued |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (1,382 | ) |
Net loss attributable to common shareholders |
| $ | (26,853 | ) |
| $ | (44,733 | ) |
| $ | (44,382 | ) |
| $ | (56,337 | ) |
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding—basic and diluted |
|
| 42,501,321 |
|
|
| 2,366,198 |
|
|
| 42,145,435 |
|
|
| 2,147,876 |
|
Net loss per share attributable to common shareholders —basic and diluted |
| $ | (0.63 | ) |
| $ | (18.91 | ) |
| $ | (1.05 | ) |
| $ | (26.23 | ) |
The Company’s potentially dilutive securities, which include stock options, convertible preferred shares, preferred exchangeable shares and common share warrants, have been excluded from the computation of diluted net loss per share as the effect would be to reduceis computed by dividing the net loss per share. Therefore,income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding usedfor the period. Diluted net income (loss) attributable to calculate both basiccommon shareholders is computed by adjusting net income (loss) attributable to common shareholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net income (loss) per share attributable to common shareholders is computed by dividing the diluted net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding for the period, including potential dilutive common shares. For purpose of this calculation, outstanding stock options, warrants and convertible preferred shares are considered potential dilutive common shares.
The Company’s convertible preferred shares contractually entitle the holders of such shares to participate in dividends but do not contractually require the holders of such shares to participate in losses of the Company. Accordingly, in periods in which the Company reports a net loss attributable to common shareholders, such losses are not allocated to such participating securities. In periods in which the Company reported a net loss attributable to common shareholders, diluted net loss per share attributable to common shareholders is the same. The Company excluded the following potential common shares, presented based on amounts outstanding at each period end, from the computation of dilutedsame as basic net loss per share attributable to common shareholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common shareholders for the periods indicated because including them would have hadthree and nine months ended September 30, 2021 and 2020.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), as subsequently amended, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors), and replaces the existing guidance in ASC 840, Leases. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine the recognition pattern of lease expense over the term of the lease. In addition, a lessee is required to record (i) a right-of-use asset and a lease liability on its balance sheet for all leases with accounting lease terms of more than 12 months regardless of whether it is an anti-dilutive effect:
|
| Six Months Ended June 30, |
| |||||
|
| 2021 |
|
| 2020 |
| ||
Options to purchase common shares |
|
| 7,049,710 |
|
|
| 5,354,984 |
|
Convertible preferred shares (as converted to common shares) |
|
| — |
|
|
| — |
|
Preferred exchangeable shares (as converted to convertible preferred shares and then to common shares) |
|
| — |
|
|
| — |
|
Warrants to purchase common shares |
|
| 651,816 |
|
|
| 749,197 |
|
|
|
| 7,701,526 |
|
|
| 6,104,181 |
|
|
|
operating or financing lease and (ii) lease expense in its consolidated statement of operations for operating leases and amortization and interest expense in its consolidated statement of operations for financing leases. Leases with a term of 12 months or less may be accounted for similar to existing guidance for operating leases under ASC 840. In JanuaryJuly 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), which added an optional transition method that allows companies to adopt the standard as of the beginning of the year of adoption as opposed to the earliest comparative period presented.
The Company entered into an operatingearly adopted the new leasing standard effective January 1, 2021, using the alternative modified retrospective transition approach applied to leases existing as of January 1, 2021. As a result, prior periods are presented in accordance with the previous guidance in ASC 840. The Company has elected to apply the package of practical expedients requiring no reassessment of whether any expired or existing contracts are or contain leases, the lease classification of any expired or existing leases, or the capitalization of initial direct costs for office space in Boston, Massachusetts, which was to expire in July 2023 with no renewal options. In July 2020,any existing leases. Additionally, the Company paid $0.1 millionhas elected not to terminate thisseparate lease effective immediately.
In August 2018, the Company entered intoand non-lease components and not to recognize leases with an operating lease for office space in Hamilton, Ontario. This lease was amended in September 2020 (“New Lease Commencement Date”) and expires in August 2030 with a termination option uponinitial term of twelve months written notice any time after the fifth anniversaryor less.
The cumulative effect of the New Lease Commencement Date. If the termination option is not exercised, the Company may exercise a renewal option to extend the term for an additional five-year period to August 2035. As the Company is not reasonably certain to extend the lease beyond the allowable termination date, the lease term was determined to end in August 2026 for the purposesadoption of measuring this lease.
In October 2019, the Company entered into an operating lease for office space in Boston, Massachusetts, which expires February 2026 and has no renewal options. In connection with entering into the original lease agreement, the Company issued a letter of credit of $1.5 million for the benefit of the landlord. As of June 30, 2021, $0.3 million and $1.2 million of the underlying cash balance collateralizing this letter of credit was classified as restricted cash, current and non-current, respectively,ASC 842 on the Company’s condensed consolidated balance sheets basedas of January 1, 2021 was as follows (in thousands):
|
| Balance as of |
|
| Impact of |
|
| Balance as of |
| |||
|
| December 31, 2020 |
|
| Adoption |
|
| January 1, 2021 |
| |||
Prepaid expenses and other current assets |
| $ | 5,340 |
|
| $ | (26 | ) |
| $ | 5,314 |
|
Operating lease right-of-use assets |
| $ | — |
|
| $ | 5,664 |
|
| $ | 5,664 |
|
Total assets |
| $ | 310,676 |
|
| $ | 5,638 |
|
| $ | 316,314 |
|
Operating lease liabilities |
| $ | — |
|
| $ | 959 |
|
| $ | 959 |
|
Deferred rent, net of current portion |
| $ | 11 |
|
| $ | (11 | ) |
| $ | — |
|
Operating lease liabilities, net of current portion |
| $ | — |
|
| $ | 4,690 |
|
| $ | 4,690 |
|
Total liabilities |
| $ | 16,163 |
|
| $ | 5,638 |
|
| $ | 21,801 |
|
The adoption of ASC 842 did not have a material impact on the release date of the restrictions of this cash. As of December 31, 2020, the entire underlying cash balance collateralizing this letter of credit was classified as restricted cash, non-current, on the Company’s condensed consolidated balance sheets.
On March 16, 2021, the Company entered into an amendment to expand the area under lease (“Expansion Premises”) and extend the term of thepremises currently under lease (“Original Premises”) to align with the lease end date for the Expansion Premises. The additional rent for the Expansion Premises was determined to be commensurate with the additional right-of-use and is accounted for as a new operating lease that was recognized on the Company’s balance sheet as of June 30, 2021 since the Company was able to access the Expansion Premises. The Company expects to make certain improvements to the Expansion Premises, for which the landlord will provide the Company an allowance of up to $0.2 million. The Company currently expects the rent for the Expansion Space to commence on January 1, 2022, approximately three months after the Company’s work is estimated to be complete. The Company currently expects the lease end date for the Original Premises and the Expansion Premises lease to be April 30, 2027, with no option to extend the lease term. The lease modification for the extension of the Original Premises and the recognition of the Expansion Premises resulted in increases to the Company’s right-of-use asset balance, which was obtained in exchange for operating lease liabilities, of $0.9 million and $1.2 million, respectively.
On June 1, 2021, the Company entered into a lease for a manufacturing facility in Hamilton, Ontario. The Company currently expects the rent for the manufacturing facility, which is under construction, to commence in October 2022, approximately two months after the anticipated delivery date of the premises. The Company currently expects the lease end date for the manufacturing facility to be in September 2037, with a five-year renewal option. Upon execution of the lease in June 2021, the Company paid $2.5 million CAD (equivalent to $2.1 million at the time of payment) which represented an initial direct cost paid prior to the lease commencement date. As of June 30, 2021, the $2.1 million payment was recorded to prepaid rent as a component of other non-current assets. On the lease commencement date, the Company will reclassify the prepayment to the right-of-use asset, thereby increasing its initial value, but it will not be included in the measurement of the lease liability. The lease was not recorded on the condensed consolidated balance sheet as a component of the Company’s right-of-use asset and operating lease liabilities as the facility is under construction at the date of the issuance of these financial statements. The Company is currently evaluating the lease classification as an operating lease or finance lease for accounting purposes.
The components of operating lease cost, which are included within operating expenses in the accompanying condensed consolidated statements of operations and comprehensive loss, arestatements of non-controlling interest, convertible preferred shares and shareholders’ equity (deficit) or statements of cash flows as follows (in thousands)of January 1, 2021.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740):
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||
|
| 2021 |
|
| 2021 |
| ||
Operating lease cost |
| $ | 367 |
|
| $ | 667 |
|
Variable lease cost |
|
| 16 |
|
|
| 16 |
|
Total lease cost |
| $ | 383 |
|
| $ | 683 |
|
Simplifying the Accounting for Income Taxes (“ASU 2019-12”) as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The following table summarizes supplemental informationguidance is effective for the Company’s operating leases:
|
| As of June 30, |
| |
|
| 2021 |
| |
Weighted-average remaining lease term (in years) |
|
| 5.7 |
|
Weighted average discount rate |
|
| 4.9 | % |
Cash paid for amounts included in the measurement of lease liabilities |
| $ | 569 |
|
Company for interim and annual periods beginning after December 15, 2022, with early adoption permitted. We adopted ASU 2019-12 effective January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on our condensed consolidated financial statements.
AsRecently Issued Accounting Pronouncements
The Company qualifies as “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and has elected to “opt in” to the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for public and nonpublic companies, the Company will adopt the new or revised standard at the time nonpublic companies adopt the new or revised standard and will do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company. The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.
In June 30,2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which narrowed the scope and changed the effective date for non-public entities for ASU 2016-13. The FASB subsequently issued supplemental guidance within ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”). ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. This guidance is effective for the Company for annual periods beginning after December 15, 2022, including interim periods within that fiscal year. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-13 will have on its consolidated financial statements.
In May 2021, the future maturitiesFASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of operating lease liabilities areFreestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides clarification and reduces diversity in accounting for modifications or exchanges of freestanding equity-classified written call options (such as follows (in thousands):
Year Ending December 31, |
|
|
|
|
2021 (six months) |
| $ | 583 |
|
2022 |
|
| 1,433 |
|
2023 |
|
| 1,470 |
|
2024 |
|
| 1,507 |
|
2025 |
|
| 1,544 |
|
Thereafter |
|
| 1,899 |
|
Total lease payments |
| $ | 8,436 |
|
Less: imputed interest |
|
| (1,093 | ) |
Total lease liabilities |
| $ | 7,343 |
|
In accordance with ASC 840, rent expense was $0.3 million and $0.4 millionwarrants) that remain equity classified after modification or exchange. This guidance is effective for annual periods beginning after December 15, 2021, including interim periods within that fiscal year. Companies should apply the three and six months ended June 30, 2020, respectively.
Future minimum lease payments due under operating leases asnew standard prospectively to modifications or exchanges occurring after the effective date of December 31, 2020 were as follows (in thousands):
Year Ending December 31, |
|
|
|
|
2021 |
| $ | 1,127 |
|
2022 |
|
| 1,158 |
|
2023 |
|
| 1,190 |
|
2024 |
|
| 1,221 |
|
2025 |
|
| 1,253 |
|
Thereafter |
|
| 361 |
|
Total |
| $ | 6,310 |
|
the new standard. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2021-04 will have on its consolidated financial statements.
|
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Manufacturing Commitments
In January 2019, and as amended in September 2020, the Company entered into an agreement with CPDC, a related party (see Note 15), to manufacture clinical trial materials. As of June 30, 2021, the Company had non-cancelable minimum purchase commitments under the agreement totaling $0.1 million over the following twelve months.
In May 2019, the Company entered into an agreement with a third-party contract manufacturing organization to manufacture clinical trial materials. As of June 30, 2021, the Company had non-cancelable minimum purchase commitments under the agreement totaling $1.2 million over the following twelve months.
Indemnification Agreements
In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and certain of its executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not currently aware of any indemnification claims and has not accrued any liabilities related to such obligations in its condensed consolidated financial statements as of June 30, 2021 or December 31, 2020.
Legal Proceedings
The Company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to such legal proceedings.
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The Company’s chief executive officer, founder and member of the board of directors, John Valliant, Ph.D., is a member of the board of directors at CPDC.
The Company has entered into license agreements with CPDC (see Note 10). In addition, the Company has entered into a Master Services Agreement and a SupplyStrategic Collaboration Agreement with CPDC, under which CPDC provides services to the Company related to preclinical and manufacturing services, administrative support services and access to laboratory facilities. In connection with the Supply Agreement, the Company is obligated to pay CPDC an amount of $0.2 million per quarter, or $0.8 million in the aggregate per year, plus fees for materials, packaging and distribution of products supplied to the Company, unless the agreement is terminated by the Company. The Company recognized expenses in connection with the services performed in the normal course of business under the Master Services Agreement and the Supply Agreement in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):AstraZeneca UK Limited
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| Three Months Ended June 30, |
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| Six Months Ended June 30, |
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| 2021 |
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| 2020 |
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| 2021 |
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| 2020 |
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Research and development expenses |
| $ | 339 |
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| $ | 236 |
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| $ | 656 |
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| $ | 639 |
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General and administrative expenses |
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| 16 |
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| 13 |
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| 32 |
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| 27 |
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| $ | 355 |
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| $ | 249 |
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| $ | 688 |
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| $ | 666 |
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During the three and six months ended June 30, 2021, the Company made payments to CPDC in connection with the services described above of $0.4 million and $0.9 million, respectively. During the three and six months ended JuneOn October 30, 2020, the Company made paymentsand AstraZeneca entered into the AstraZeneca Agreement pursuant to CPDC in connection with the services described above of $0.4 million and $0.7 million, respectively. Amounts due to CPDC by the Company in connection with the services described above totaled less than $0.1 million and $0.3 million as of June 30, 2021 and December 31, 2020, respectively, which amounts were included in accounts payable and accrued expenses on the condensed consolidated balance sheets.
In addition to costs incurred in connection with the services described above, the Company also reimbursed CPDC for purchases on the Company’s behalf from parties with which the Company did not have an account. During the three and six months ended June 30, 2021, the Company made payments to CPDC of $0.1 million, for both periods, for reimbursement of these pass-through costs. During the three and six months ended June 30, 2020, the Company made payments to CPDC of less than $0.1 million and $0.1 million, respectively, for reimbursement of these pass-through costs.
In connection with the Company entering into a lease for a manufacturing facility in Hamilton, Ontario (see Note 13), the Company entered into an agreement with CPDC for services relating to certain aspects of the validation of the manufacturing facility which is currently under construction. During the three and six months ended June 30, 2021, the Company paid $3.0 million CAD (equivalent to $2.5 million at the time of payment) which was recorded as research and development expense.
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The Company has operating companies in the United States and Canada and a non-operating company in Ireland. Information about the Company’s long-lived assets, consisting solely of property and equipment, net, by geographic region was as follows (in thousands):
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| June 30, 2021 |
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| December 31, 2020 |
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United States |
| $ | 81 |
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| $ | 103 |
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Canada |
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| 2,578 |
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| 1,864 |
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| $ | 2,659 |
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| $ | 1,967 |
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Completion of Asset Acquisition from Rainier Therapeutics, Inc.
On July 1, 2021, the Company completed its acquisition of vofotamab, an antibody targeted to FGFR3 which Fusion refers to as FPI-1966, from Rainier. Pursuant to the Rainier Agreement, as amended, and a share purchase agreement entered into by the Company and Rainier concurrently with the original Rainier Agreement, the Company issued to certain of Rainier’s shareholders 313,359 of the Company’s common shares at the closing of the Rainer Agreement (see Note 10 for a full description of the Rainier Agreement, as amended).
Open Market Sales AgreementSM
On July 2, 2021, the Company entered into an Open Market Sales AgreementSM (the “Sales Agreement”) with Jefferies LLC to issue and sell shares of the Company’s common shares of up to $100.0 million in gross proceeds, from time to time during the term of the Sales Agreement, through an “at-the-market” equity offering program under which Jefferies LLCAstraZeneca will act as the Company’s agent and/or principal (the “ATM Facility”). The ATM Facility provides that Jefferies LLC will be entitled to compensation for its services in an amount of up to 3.0% of the gross proceeds of any shares sold under the ATM Facility. The Company has no obligation to sell any shares under the ATM Facility and may, at any time, suspend solicitation and offers under the Sales Agreement. The Company has not sold any shares under the Sales Agreement.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and related notes appearing in Part I, Item I of this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and notes thereto for the year ended December 31, 2020, included in our Annual Report on Form 10-K filed on March 25, 2021 with the U.S. Securities and Exchange Commission, or the SEC.
Some of the statements contained in this discussion and analysis or set forth elsewhere in this Quarterly Report on Form 10-Q, including information with respect to our plans and strategy for our business, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. The following information and any forward-looking statements should be considered in light of factors discussed elsewhere in this Quarterly Report on Form 10-Q, particularly including those risks identified in Part II, Item 1A “Risk Factors” and our other filings with the SEC.
Our actual results and timing of certain events may differ materially from the results discussed, projected, anticipated, or indicated in any forward-looking statements. We caution you that forward-looking statements are not guarantees of future performance and that our actual results of operations, financial condition and liquidity, and the development of the industry in which we operate may differ materially from the forward-looking statements contained in this Quarterly Report on Form 10-Q. Statements made herein are as of the date of the filing of this Form 10-Q with the SEC and should not be relied upon as of any subsequent date. Even if our results of operations, financial condition and liquidity, and the development of the industry in which we operate are consistent with the forward-looking statements contained in this Quarterly Report on Form 10-Q, they may not be predictive of results or developments in future periods. We disclaim any obligation, except as specifically required by law and the rules of the SEC, to publicly update or revise any such statements to reflect any change in our expectations or in events, conditions or circumstances on which any such statements may be based or that may affect the likelihood that actual results will differ from those set forth in the forward-looking statements.
Overview
We are a clinical-stage oncology company focused on developing next-generation radiopharmaceuticals as precision medicines. We have developed our Targeted Alpha Therapies, or TAT, platform together with our proprietary Fast-Clear linker technology to enable us to connect alpha particle emitting isotopes to various targeting molecules in order to selectively deliver the alpha particle payloads to tumors. Our TAT platform is underpinned by our research and insights into the underlying biology of alpha emitting radiopharmaceuticals as well as our differentiated capabilities in target identification, candidate generation, manufacturing and supply chain and development of imaging diagnostics. We believe that our TATs have the potential to build on the successes of currently available radiopharmaceuticals and be broadly applicable across multiple targets and tumor types.
Our lead product candidate, FPI-1434, utilizes our Fast-Clear linker to connect a humanized monoclonal antibody that targets the insulin-like growth factor 1 receptor, or IGF-1R, with the alpha emitting isotope actinium-225, or 225Ac. IGF-1R is a well-established tumor target that is found on numerous types of cancer cells, but historical attempts to suppress tumors by inhibiting the IGF-1R signaling pathway have been unsuccessful in the clinic. For FPI-1434, we have designed the product candidate to rely on the IGF-1R antibody only as a way to identify and deliver our alpha emitting payload to the tumor, and the mechanism of action does not depend on the IGF-1R signaling pathway to kill the tumor. We are currently conducting a Phase 1 clinical trial of FPI-1434 as a monotherapy in patients with solid tumors expressing IGF-1R and convened a Safety Review Committee, or SRC, meeting in the third quarter of 2020 to evaluate the safety and tolerability of the third dose escalation cohort of 40kBq/kg administered as a single dose. The available safety, dosimetry, pharmacokinetic and biodistribution data from the single dose escalation portion of the study provided justification for the initiation of FPI-1434 multi-dosing at 75kBq/kg and the SRC made the recommendation to proceed with dose escalation to 75kBq/kg administered as repeat doses. We dosed the first patient in the multi-dose escalation portion of the study in the fourth quarter of 2020. We anticipate reporting Phase 1 multiple-dose safety and imaging data, and the recommended Phase 2 dose/schedule, in the first half of 2022. In preclinical studies, FPI-1434 has been evaluated in combination with approved checkpoint inhibitors and DNA damage response inhibitors, or DDRis. As such, we believe that the synergies observed with either class of agent could expand the addressable patient populations for FPI-1434 and allow for potential use in earlier lines of treatment. We anticipate initiation of a Phase 1 combination study with FPI-1434and KEYTRUDA® (pembrolizumab) to occur six to nine months following determination of the recommended Phase 2 dose of FPI-1434 monotherapy. In addition, we are progressing our earlier-stage product candidate, FPI-1966, into clinical development. We submitted an investigational new drug application, or IND, for FPI-1966 for the treatment of head and neck and bladder cancers expressing fibroblast growth factor receptor 3, or FGFR3, in the second quarter of 2021 and announced FDA clearance of the IND application in July 2021. We anticipate initiating the Phase 1 clinical trial of FPI-1966 around the end of 2021 and reporting interim data from the first patient cohort around the end of 2022.
On October 30, 2020, we entered into a strategic collaboration agreement with AstraZeneca UK Limited, or AstraZeneca,work to jointly discover, develop and commercialize next-generation alpha-emitting radiopharmaceuticals and combination therapies for the treatment of cancer. The collaboration leverages ourcancer globally by leveraging the Company’s Targeted Alpha Therapies, or TATs, platform and expertise in radiopharmaceuticals with AstraZeneca’s leading portfolio of antibodies and cancer therapeutics, including DDRis.DNA damage response inhibitors (“DDRis”). Each party retains full ownership over its existing assets.
The AstraZeneca Agreement consists of 2 distinct collaboration programs: novel TATs and combination therapies. Under the terms ofAstraZeneca Agreement, the collaboration agreement, the companies will jointly discover,parties may develop and commercializeup to three novel TATs which(the “Novel TATs Collaboration”). The parties will utilize our Fast-Clear linker technology platform with antibodies in AstraZeneca’s oncology portfolio. In addition, the companies will exclusively explore certain specifiedalso evaluate up to five potential combination strategies between TATs (including ourinvolving the Company’s existing assets, including the Company’s lead candidate FPI-1434) and AstraZenecaFPI-1434, in combination with certain of AstraZeneca’s existing therapeutics for the treatment of various cancers. Both companies will retain full rights to their respective assets.cancers (the “Combination Therapies Collaboration”).
On April 1, 2021, we entered into an asset purchase agreement with Ipsen Pharma SAS, or Ipsen, to acquire Ipsen's intellectual propertyThe AstraZeneca Agreement expires on a TAT-by-TAT and assets related to IPN-1087. IPN-1087 is a small molecule targeting neurotensin receptor 1, or NTSR1, a protein expressed on multiple solid tumor types. We intend to combine our expertise and proprietary TAT platform with IPN-1087 to create an alpha-emitting radiopharmaceutical, FPI-2059, targeting solid tumors expressing NTSR1. We expect to submit an IND for FPI-2059 incombination-by-combination basis upon the first half of 2022.
Since our inception in 2014, we have devoted substantially all of our efforts and financial resources to organizing and staffing our Company, business planning, raising capital, acquiring or discovering product candidates and securing related intellectual property rights and conducting discovery, research and development activities for our product candidates. We do not have any products approved for sale and have not generated any revenue from product sales. On June 30, 2020, we completed our initial public offering, or IPO, of our common shares and issued and sold 12,500,000 common shares at a public offering price of $17.00 per share, resulting in net proceeds of approximately $193.1 million after deducting underwriting fees and offering costs. Prior to our IPO, we funded our operations primarily with proceeds from sales of equity securities (including borrowings under a convertible promissory note, which converted into preferred shares). Through June 30, 2021, we had received net proceeds of $364.2 million from sales of equity securities (including borrowings under a convertible promissory note, which converted into preferred shares). On July 2, 2021, we entered into an Open Market Sales AgreementSM (the “Sales Agreement”) with Jeffries LLC to issue and sell our common shares up to $100.0 million in gross proceeds, from time to time during the termlater of the Sales Agreement, through an “at-the-market” equity offering program under which Jeffries LLC will actexpiration of development and exclusivity obligations relating to such TAT or combination or, if such TAT or combination is commercialized as our agent. We have not sold any sharesa product under the Sales Agreement.
We have incurred significant operating losses since our inception. Our ability to generate product revenue sufficient to achieve profitability will depend heavily onAstraZeneca Agreement, the successful developmentexpiration of the commercial life of such product. The Company and eventual commercialization of one or more of our current or future product candidates. Our net losses were $26.9 million and $44.4 millionAstraZeneca can each terminate the AstraZeneca Agreement for the three and six months ended June 30, 2021, respectively, and $44.7 million and $55.0 million forother party’s uncured material breach following the three and six months ended June 30, 2020. As of June 30, 2021, we had an accumulated deficit of $157.6 million. We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We expect that our expenses and capital expenditure requirements will increase substantially in connection with our ongoing activities, particularly if and as we:
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We will not generate revenue from product sales unless and until we successfully complete clinical development and obtain regulatory approval for our product candidates. If we obtain regulatory approval for any of our product candidates and do not enter into a commercialization partnership, we expect to incur significant expenses related to developing our internal commercialization capabilities to support product sales, marketing and distribution.
As a result, we will need substantial additional funding to support our continuing operations and pursue our growth strategy. Until such time as we can generate significant revenue from product sales, if ever, we expect to finance our operations through the sale of equity, debt financings or other capital sources, which may include collaborations with other companies or other strategic transactions. We may not be able to raise additional funds or enter into such other agreements or arrangements when needed on favorable terms, or at all. If we fail to raise capital or enter into such agreements as and when needed, we would have to significantly delay, reduce or eliminate the development and commercialization of one or more of our product candidates or delay our pursuit of potential in-licenses or acquisitions.
Becauseapplicable notice period. Each of the numerous risksCompany and uncertainties associatedAstraZeneca may also terminate the AstraZeneca Agreement with respect to any TAT or combination product if such party determines that the continued development we are unableof such TAT or combination product is not commercially viable, or for a material safety issue with respect to predict the timingsuch TAT or amount of increased expenses or when or if we will be able to achieve or maintain profitability. Even if we are able to generate product sales, we may not become profitable. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and be forced to reduce or terminate our operations.combination product.
As of June 30, 2021, we had cash, cash equivalents and investments of $260.5 million. We believe that our existing cash, cash equivalents and investments will enable us to fund our operating expenses and capital expenditure requirements through the end of 2023.
Impact of the COVID-19 Pandemic
We are closely monitoring howThe COVID-19 pandemic, which began in December 2019 and has spread worldwide, has caused many governments to implement measures to slow the spread of COVID-19, including new variants thereof, is affecting our employees,the outbreak through quarantines, travel restrictions, heightened border security and other measures. The impact of this pandemic has been, and will likely continue to be, extensive in many aspects of society, which has resulted, and will likely continue to result, in significant disruptions to the global economy as well as businesses and capital markets around the world. The future progression of the pandemic and its effects on the Company’s business preclinical studies and clinical trials. operations are uncertain.
In response to public health directives and orders and to help minimize the COVID-19 pandemic, mostrisk of ourthe virus to employees, transitionedthe Company has taken precautionary measures, including implementing work-from-home policies for certain employees. The impact of the virus and variants thereof, including work-from-home policies, may negatively impact productivity, disrupt the Company’s business, and delay its preclinical research and clinical trial activities and its development program timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on the Company’s ability to working remotely and continue to do so and travel between the United States and Canada remains limited. While we have commenced dosingconduct its business in the multi-dosing portion ofordinary course. Specifically, the Phase 1 clinical trial of FPI-1434, we haveCompany has experienced material delays in patient recruitment and enrollment in its ongoing Phase 1 clinical trial of FPI-1434 as a result of continued resourcing issues related to COVID-19 at trial sites and potentially due to concerns among patients about participating in clinical trials during a public health emergency. The COVID-19 pandemicCompany may not be able to enroll additional patient cohorts on its planned timeline due to disruptions at its clinical trial sites and is also affecting the operations of third parties upon whom we rely. We are unable to predict how the COVID-19 pandemic may affect ourits ability to successfully progress our Phase 1 clinical trial of FPI-1434 or any otherits clinical programs in the future. Moreover, there remains uncertainty relatingOther impacts to the trajectoryCompany’s business may include temporary closures of its suppliers or other third parties upon whom the Company relies and disruptions or restrictions on its employees’ ability to travel. Any prolonged material disruption to the Company’s employees, suppliers or other third parties upon whom the Company relies could adversely impact the Company’s preclinical research and clinical trial activities, financial condition and results of operations, including its ability to obtain financing.
The Company is monitoring the potential impact of the COVID-19 pandemic, including variants thereof, on its business and condensed consolidated financial statements. To date, the Company has not incurred impairment losses in the carrying values of its assets as a result of the pandemic and whether it may cause further delaysis not aware of any specific related event or circumstance that would require it to revise its estimates reflected in patient study recruitment. these condensed consolidated financial statements.
2. | Summary of Significant Accounting Policies |
Use of Estimates
The impactpreparation of related responsesthe Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and disruptions caused byassumptions that affect the COVID-19 pandemic may result in difficulties or delays in initiating, enrolling, conducting or completing our plannedreported amounts of assets and ongoing trialsliabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the incurrencereported amounts of unforeseenexpenses during the reporting periods. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, the accrual of research and development expenses, the valuations of common shares, preferred share tranche rights and preferred share warrants prior to the closing of the IPO, valuations of share-based awards and revenue recognition. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results may differ from those estimates or assumptions.
Unaudited Interim Financial Information
The accompanying condensed consolidated balance sheet as of September 30, 2021, the condensed consolidated statement of operations and comprehensive loss, and the condensed consolidated statement of non-controlling interest, convertible preferred shares and shareholders’ equity (deficit) for the three and nine months ended September 30, 2021 and 2020, and the condensed consolidated statement of cash flows for the nine months ended September 30, 2021 and 2020 are unaudited. The unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for the fair statement of the Company’s financial position as of September 30, 2021 and the results of its operations for three and nine months ended September 30, 2021 and 2020 and its cash flows for the nine months ended September 30, 2021 and 2020. The financial data and other information disclosed in these notes related to the three and nine months ended September 30, 2021 and 2020 are also unaudited. The results for the three and nine months ended September 30, 2021 are not necessarily indicative of results to be expected for the year ending December 31, 2021, any other interim periods, or any future year or period.
The accompanying balance sheet as of December 31, 2020 has been derived from the Company’s audited financial statements for the year ended December 31, 2020. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to rules and regulations. However, the Company believes that the disclosures are adequate to make the information presented not misleading. These unaudited interim condensed consolidated financial statements should be read in conjunction with the audited annual consolidated financial statements as of December 31, 2020, and notes thereto, which are included in the Company’s Annual Report on Form 10-K that was filed with the SEC on March 25, 2021.
Foreign Currency and Currency Translation
The reporting currency of the Company is the U.S. dollar. The functional currency of the Company’s operating company in Canada, operating company in the U.S. and non-operating company in Ireland is also the U.S. dollar. As a result, the Company records no cumulative translation adjustments related to translation of unrealized foreign exchange gains or losses.
For the remeasurement of local currencies to the U.S. dollar functional currency of the Canadian and Irish entities, assets and liabilities are translated into U.S. dollars at the exchange rate in effect on the balance sheet date, and income items and expenses are translated into U.S. dollars at the average exchange rate in effect during the period. Resulting transaction gains (losses) are included in other income (expense), net in the consolidated statements of operations and comprehensive loss, as incurred.
Adjustments that arise from exchange rate changes on transactions denominated in a currency other than the local currency are included in other income (expense), net in the consolidated statements of operations and comprehensive loss, as incurred.
During the three and nine months ended September 30, 2021, the Company recorded less than ($0.1) million and $0.1 million, respectively, of foreign currency gains (losses) in the condensed consolidated statements of operations and comprehensive loss. During the three and nine months ended September 30, 2020, the Company recorded less than ($0.1) million of foreign currency losses in the condensed consolidated statements of operations and comprehensive loss for both periods.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents consist of standard checking accounts, money market accounts, and all highly liquid investments with an original maturity of three months or less at the date of purchase.
As of September 30, 2021 and December 31, 2020, the Company was required to maintain separate cash balances of $0.3 million to collateralize corporate credit cards with a bank, which was classified as restricted cash, current, on its condensed consolidated balance sheets. The Company also maintained a $0.1 million guaranteed investment certificate to fulfill certain contractual obligations which was classified as restricted cash, current, as of September 30, 2021 and December 31, 2020.
In connection with the Company’s lease agreement entered into in October 2019 (see Note 13), the Company maintains a letter of credit of $1.5 million for the benefit of the landlord. As of September 30, 2021, $0.3 million and $1.2 million of the underlying cash balance collateralizing this letter of credit was classified as restricted cash, current and non-current, respectively, on the Company’s condensed consolidated balance sheets based on the release date of the restrictions of this cash. As of December 31, 2020, the entire underlying cash balance collateralizing this letter of credit was classified as restricted cash, non-current, on the Company’s condensed consolidated balance sheets.
As of September 30, 2021 and December 31, 2020, the cash, cash equivalents and restricted cash of $40.3 million and $92.4 million, respectively, presented in the condensed consolidated statements of cash flows included cash and cash equivalents of $38.4 million and $90.5 million, respectively, and restricted cash of $1.9 million for both periods.
Investments
The Company determines the appropriate classification of its investments in debt securities at the time of purchase and re-evaluates such determination at each balance sheet date. The Company classifies its investments as current or non-current based on each instrument’s underlying maturity date. Investments with original maturities of greater than three months and less than twelve months are classified as current and are included in short-term investments in the condensed consolidated balance sheets. Investments with remaining maturities greater than one year from the balance sheet date are classified as non-current and are included in long-term investments in the condensed consolidated balance sheets. The Company’s investments are classified as available-for-sale, are reported at fair value and consist of U.S. government agency securities, corporate bonds, and commercial paper. Unrealized gains and losses are included in other comprehensive income (loss) as a component of shareholders’ equity (deficit) until realized. Amortization and accretion of premiums and discounts are recorded in interest income (expense). Realized gains and losses on debt securities are included in other income (expense), net.
If any adjustment to fair value reflects a decline in value of the investment, the Company considers all available evidence to evaluate the extent to which the decline is other than temporary and, if so, marks the investment to market on the Company’s condensed consolidated statements of operations and comprehensive loss.
Deferred Offering Costs
The Company capitalizes certain legal, professional accounting and other third-party fees that are directly associated with in-process equity financings as deferred offering costs until such financings are consummated. After consummation of an equity financing, these costs are recorded as a reduction of the proceeds from the offering, either as a reduction to the carrying value of the preferred exchangeable shares or convertible preferred shares or in shareholders’ equity (deficit) as a reduction of additional paid-in capital generated as a result of disruptionsthe offering. Should an in-process equity financing be abandoned, the deferred offering costs would be expensed immediately as a charge to operating expenses in clinical supply or preclinical study or clinical trial delays.the consolidated statements of operations and comprehensive loss. The continued impactCompany recorded $0.3 million of COVID-19deferred offering costs as of September 30, 2021 in other non-current assets and did 0t record any deferred offering costs as of December 31, 2020.
Collaborative Arrangements
The Company considers the nature and contractual terms of arrangements and assesses whether an arrangement involves a joint operating activity pursuant to which the Company is an active participant and is exposed to significant risks and rewards dependent on results will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic spreadcommercial success of the disease or variants thereof,activity. If the durationCompany is an active participant and is exposed to significant risks and rewards dependent on the commercial success of the pandemic, vaccination rates, travel restrictionsactivity, the Company accounts for such arrangement as a collaborative arrangement under ASC 808, Collaborative Arrangements. ASC 808 describes arrangements within its scope and social distancingconsiderations surrounding presentation and disclosure, with recognition matters subjected to other authoritative guidance, in certain cases by analogy.
For arrangements determined to be within the scope of ASC 808 where a collaborative partner is not a customer for certain research and development activities, the Company accounts for payments received for the reimbursement of research and development costs as a contra-expense in the United States, Canadaperiod such expenses are incurred. This reflects the joint risk sharing nature of these activities within a collaborative arrangement. The Company classifies payments owed or receivables recorded as other current liabilities or prepaid expenses and other countries, business closures or business disruptions, the ultimate impact on financial markets and the global economy, and the effectiveness of actions takencurrent assets, respectively, in the United States, CanadaCompany’s consolidated balance sheets.
If payments from the collaborative partner to the Company represent consideration from a customer in exchange for distinct goods and other countriesservices provided, then the Company accounts for those payments within the scope of ASC 606, Revenue from Contracts with Customers (“ASC 606”). Please refer to contain and treatNote 3, “Collaboration Agreement” for additional details regarding the disease.
Components of Results of OperationsCompany’s Strategic Collaboration Agreement with AstraZeneca UK Limited (“AstraZeneca”) (the “AstraZeneca Agreement”).
Revenue from Product SalesContracts with Customers
In accordance with ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, it performs the following five steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations within the contract and (v) recognize revenue when (or as) the Company satisfies a performance obligation.
The Company only applies the five-step model to contracts when it determines that it is probable it will collect the consideration it is entitled to 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 the contract to determine whether each promised good or service is a performance obligation. The promised goods or services in the Company’s arrangements typically consist of a license to the Company’s intellectual property and/or research and development services. The Company may provide customers with options to additional items in such arrangements, which are accounted for separately when the customer elects to exercise such options, unless the option provides a material right to the customer. Performance obligations are promises in a contract to transfer a distinct good or service to the customer that (i) the customer can benefit from on its own or together with other readily available resources, and (ii) is separately identifiable from other promises in the contract. Goods or services that are not individually distinct performance obligations are combined with other promised goods or services until such combined group of promises meet the requirements of a performance obligation.
The Company determines transaction price based on the amount of consideration the Company expects to receive for transferring the promised goods or services in the contract. Consideration may be fixed, variable, or a combination of both. At contract inception for arrangements that include variable consideration, the Company estimates the probability and extent of consideration it expects to receive under the contract utilizing either the most likely amount method or expected amount method, whichever best estimates the amount expected to be received. The Company then considers any constraints on the variable consideration and includes in the transaction price variable consideration to the extent it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.
The Company then allocates the transaction price to each performance obligation based on the relative standalone selling price and recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) control is transferred to the customer and the performance obligation is satisfied. For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
The Company records amounts as accounts receivable when the right to consideration is deemed unconditional. Amounts received, or that are unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract are recognized as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as the current portion of deferred revenue. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion.
The Company’s revenue generating arrangements typically include upfront license fees, milestone payments and/or royalties.
If a license is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from nonrefundable, up-front fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.
At the inception of an agreement that includes research and development milestone payments, the Company evaluates each milestone to determine when and how much of the milestone to include in the transaction price. The Company first estimates the amount of the milestone payment that the Company could receive using either the expected value or the most likely amount approach. The Company primarily uses the most likely amount approach as this approach is generally most predictive for milestone payments with a binary outcome. Then, the Company considers whether any portion of the estimated amount is subject to the variable consideration constraint (that is, whether it is probable that a significant reversal of cumulative revenue would not occur upon resolution of the uncertainty). The Company updates the estimate of variable consideration included in the transaction price at each reporting date which includes updating the assessment of the likely amount of consideration and the application of the constraint to reflect current facts and circumstances.
For arrangements 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 will recognize 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).
For the three and nine months ended September 30, 2021, the Company recorded $0.3 million and $0.8 million, respectively, of revenue under collaboration agreements. Please refer to Note 3, “Collaboration Agreement” for additional details regarding revenue recognition under the AstraZeneca Agreement.
Business Combinations
In determining whether an acquisition should be accounted for as a business combination or asset acquisition, the Company first determines whether substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets. If this is the case, the single identifiable asset or the group of similar assets is not deemed to be a business, and is instead deemed to be an asset. If this is not the case, the Company then further evaluates whether the single identifiable asset or group of similar identifiable assets and activities includes, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. If so, the Company concludes that the single identifiable asset or group of similar identifiable assets and activities is a business.
The Company accounts for business combinations using the acquisition method of accounting. Application of this method of accounting requires that (i) identifiable assets acquired (including identifiable intangible assets) and liabilities assumed generally be measured and recognized at fair value as of the acquisition date and (ii) the excess of the purchase price over the net fair value of identifiable assets acquired and liabilities assumed be recognized as goodwill, which is not amortized for accounting purposes but is subject to testing for impairment at least annually. Acquired in-process research and development (“IPR&D”) is recognized at fair value and initially characterized as an indefinite-lived intangible asset, irrespective of whether the acquired IPR&D has an alternative future use. Transaction costs related to business combinations are expensed as incurred. Determining the fair value of assets acquired and liabilities assumed in a business combination requires management to use significant judgment and estimates, especially with respect to intangible assets.
During the measurement period, which extends no later than one year from the acquisition date, the Company may record certain adjustments to the carrying value of the assets acquired and liabilities assumed with the corresponding offset to goodwill. After the measurement period, all adjustments are recorded in the consolidated statements of operations as operating expenses or income.
To date, wethe Company has not recorded any acquisitions as a business combination.
Asset Acquisitions
The Company measures and recognizes asset acquisitions that are not deemed to be business combinations based on the cost to acquire the assets, which includes transaction costs. Goodwill is not recognized in asset acquisitions. In an asset acquisition, the cost allocated to acquire IPR&D with no alternative future use is charged to expense at the acquisition date.
Contingent consideration in asset acquisitions payable in the form of cash is recognized when payment becomes probable and reasonably estimable, unless the contingent consideration meets the definition of a derivative, in which case the amount becomes part of the asset acquisition cost when acquired. Contingent consideration payable in the form of a fixed number of the Company’s own shares is measured at fair value as of the acquisition date and recognized when the issuance of the shares becomes probable. Upon recognition of the contingent consideration payment, the amount is included in the cost of the acquired asset or group of assets, or, if related to IPR&D with no alternative future use, charged to expense.
Fair Value Measurements
Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined 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. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
• | Level 1—Quoted prices in active markets for identical assets or liabilities. |
• | Level 2—Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data. |
• | Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques. |
Prior to the settlement of the Company’s preferred share tranche right liability and prior to the conversion of the Company’s preferred share warrant liability, these instruments were carried at fair value, determined according to Level 3 inputs in the fair value hierarchy described above (see Note 4). The Company’s cash equivalents and investments are carried at fair value, determined according to the fair value hierarchy described above (see Note 4). The carrying values of the Company’s amounts due for refundable investment tax credits and Canadian harmonized sales tax, accounts payable and accrued expenses approximate their fair values due to the short-term nature of these liabilities.
Preferred Share Tranche Right Liability
The subscription agreements for the Company’s Class B convertible preferred shares (see Note 8) and its Irish subsidiary’s Class B preferred exchangeable shares (see Note 8) provided investors the right, or obligated investors, to participate in subsequent offerings of Class B convertible preferred shares or Class B preferred exchangeable shares together with Class B special voting shares in the event that specified development or regulatory milestones were achieved (the “Class B preferred share tranche right liability”).
The Company classified these preferred share tranche rights as a liability on its consolidated balance sheets as each preferred share tranche right was a freestanding financial instrument that may have required the Company to transfer assets upon the achievement of specified milestone events. Each preferred share tranche right liability was initially recorded at fair value upon the date of issuance of each preferred share tranche right and was subsequently remeasured to fair value at each reporting date. Changes in the fair value of the preferred share tranche right liability were recognized as a component of other income (expense) in the consolidated statement of operations and comprehensive loss. Changes in the fair value of the preferred share tranche right liability were recognized until the respective preferred share tranche right was settled upon achievement of the specified milestones or it expired.
On May 15, 2020, the Company achieved the specified regulatory milestone associated with the Class B preferred share tranche right (see Note 8), which triggered the requirement of the Class B shareholders to participate in the Milestone Financing. Upon closing of the Milestone Financing on June 2, 2020, the Company issued and sold 36,806,039 Class B preferred shares at a price of $1.5154 per share and 4,437,189 Class B special voting shares at a price of $0.000001 per share and the Company’s Irish subsidiary issued and sold 4,437,189 Class B preferred exchangeable shares at a price of $1.5154 per share, for aggregate gross proceeds of $62.5 million.
The Class B preferred share tranche right liability (see Note 8) was settled in connection with the achievement of the regulatory milestone associated with the Class B preferred share tranche right. Specifically, the fair value of the Class B preferred share tranche right liability was remeasured for the last time as of the Milestone Financing closing date, resulting in the Company recognizing a loss in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2020 of $32.7 million for the change in the fair value of the tranche right liability between December 31, 2019 and June 2, 2020. Immediately thereafter, the balance of the Class B preferred share tranche right liability of $39.6 million was reclassified to Class B convertible preferred shares in an amount of $35.3 million and to non-controlling interest in the Company’s Irish subsidiary in an amount of $4.3 million on the consolidated balance sheet. For the nine months ended September 30, 2020, the Company recognized a loss of $32.7 million in the condensed consolidated statement of operations and comprehensive loss for the change in the fair value of the tranche right liability.
Preferred Share Warrant Liability
The Company classified warrants to purchase its convertible preferred shares and warrants to purchase preferred exchangeable shares of the Company’s Irish subsidiary as a liability on its consolidated balance sheets as these warrants were freestanding financial instruments that may have required the Company to transfer assets upon exercise (see Note 8). The preferred share warrant liability, which consisted of warrants to purchase Class B convertible preferred shares of the Company and warrants to purchase Class B preferred exchangeable shares of the Company’s Irish subsidiary, were initially recorded at fair value upon the date of issuance of each warrant and were subsequently remeasured to fair value at each reporting date. Changes in the fair value of the preferred share warrant liability were recognized as a component of other income (expense) in the consolidated statement of operations and comprehensive loss. Changes in the fair value of the preferred share warrant liability were recognized until each respective warrant was exercised, expired or qualified for equity classification.
Upon the closing of the IPO, the warrants to purchase its convertible preferred shares and warrants to purchase preferred exchangeable shares of the Company’s Irish subsidiary were converted into warrants to purchase shares of the Company’s common shares. As a result, the warrant liability was remeasured a final time on the closing date of the IPO and reclassified to shareholders’ equity (deficit) as the warrants qualify for equity classification.
Leases
Prior to January 1, 2021, the Company accounted for leases in accordance with ASC 840, Leases. At lease inception, the Company determined if an arrangement was an operating or capital lease. For operating leases, the Company recognized rent expense,
inclusive of rent escalation, holidays and lease incentives, on a straight-line basis over the lease term. The difference between rent expense recorded and the amount paid was charged to deferred rent. The Company presented lease incentives as deferred rent and amortized the incentives as a reduction to rent expense on a straight-line basis over the lease term. The Company classified deferred rent as current and noncurrent liabilities based on the portion of the deferred rent that was scheduled to mature within the proceeding twelve months.
Effective January 1, 2021, the Company accounts for leases in accordance with ASC 842, Leases. At contract inception, the Company determines if an arrangement is or contains a lease. A lease conveys the right to control the use of an identified asset for a period of time in exchange for consideration. If determined to be or contain a lease, the lease is assessed for classification as either an operating or finance lease at the lease commencement date, defined as the date on which the leased asset is made available for use by the Company, based on the economic characteristics of the lease. For each lease with a term greater than twelve months, the Company records a right-of-use asset and lease liability.
A right-of-use asset represents the economic benefit conveyed to the Company by the right to use the underlying asset over the lease term. A lease liability represents the obligation to make lease payments arising from the lease. The Company records amortization of operating right-of-use assets and accretion of lease liabilities as a single lease cost on a straight-line basis over the lease term. The Company elected the practical expedient to not separate lease and non-lease components and therefore measures each lease payment as the total of the fixed lease and associated non-lease components. Lease liabilities are measured at the lease commencement date and calculated as the present value of the future lease payments in the contract using the rate implicit in the contract, when available. If an implicit rate is not readily determinable, the Company uses its incremental borrowing rate measured as the rate at which the Company could borrow, on a fully collateralized basis, a commensurate loan in the same currency over a period consistent with the lease term at the commencement date. Right-of-use assets are measured as the lease liability plus initial direct costs and prepaid lease payments, less lease incentives granted by the lessor. The lease term is measured as the noncancelable period in the contract, adjusted for any options to extend or terminate when it is reasonably certain the Company will extend the lease term via such options based on an assessment of economic factors present as of the lease commencement date. The Company elected the practical expedient to not recognize leases with a lease term of twelve months or less.
The Company assesses its right-of-use assets for impairment consistent with the assessment performed for long-lived assets used in operations. If an impairment is recognized on operating lease right-of-use assets, the lease liability continues to be recognized using the same effective interest method as before the impairment and the operating lease right-of-use asset is amortized over the remaining term of the lease on a straight-line basis.
The Company’s operating leases are presented in the condensed consolidated balance sheet as operating lease right-of-use assets, classified as noncurrent assets, and operating lease liabilities, classified as current and noncurrent liabilities based on the discounted lease payments to be made within the proceeding twelve months. Variable costs associated with a lease, such as maintenance and utilities, are not included in the measurement of the lease liabilities and right-of-use assets but rather are expensed when the events determining the amount of variable consideration to be paid have occurred.
Research, Development and Manufacturing Contract Costs and Accruals
The Company has entered into various research, development and manufacturing contracts with research institutions and other companies. These agreements are generally cancelable, and related costs are recorded as research and development expenses as incurred. The Company records accruals for estimated ongoing research, development and manufacturing costs. When billing terms under these contracts do not coincide with the timing of when the work is performed, the Company is required to make estimates of outstanding obligations to those third parties as of period end. Any accrual estimates are based on a number of factors, including the Company’s knowledge of the progress towards completion of the research, development and manufacturing activities, invoicing to date under the contracts, communication from the research institutions and other companies of any actual costs incurred during the period that have not generatedyet been invoiced and the costs included in the contracts. Significant judgments and estimates may be made in determining the accrued balances at the end of any revenuereporting period. Actual results could differ from product sales,the estimates made by the Company. The historical accrual estimates made by the Company have not been materially different from the actual costs.
Comprehensive Loss
Comprehensive loss includes net loss as well as other changes in shareholders’ equity (deficit) that result from transactions and weeconomic events other than those with shareholders. For the three and nine months ended September 30, 2021 and 2020, unrealized gains and losses on investments are included in other comprehensive income (loss) as a component of shareholders’ equity (deficit) until realized.
Net Loss per Share
The Company follows the two-class method when computing net income (loss) per share as the Company has issued shares that meet the definition of participating securities. The two-class method determines net income (loss) per share for each class of common and participating securities according to dividends declared or accumulated and participation rights in undistributed earnings. The two-class method requires income available to common shareholders for the period to be allocated between common and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed.
Basic net income (loss) per share attributable to common shareholders is computed by dividing the net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted net income (loss) attributable to common shareholders is computed by adjusting net income (loss) attributable to common shareholders to reallocate undistributed earnings based on the potential impact of dilutive securities. Diluted net income (loss) per share attributable to common shareholders is computed by dividing the diluted net income (loss) attributable to common shareholders by the weighted-average number of common shares outstanding for the period, including potential dilutive common shares. For purpose of this calculation, outstanding stock options, warrants and convertible preferred shares are considered potential dilutive common shares.
The Company’s convertible preferred shares contractually entitle the holders of such shares to participate in dividends but do not expectcontractually require the holders of such shares to generate any revenue fromparticipate in losses of the sale of productsCompany. Accordingly, in periods in which the Company reports a net loss attributable to common shareholders, such losses are not allocated to such participating securities. In periods in which the Company reported a net loss attributable to common shareholders, diluted net loss per share attributable to common shareholders is the same as basic net loss per share attributable to common shareholders, since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. The Company reported a net loss attributable to common shareholders for the foreseeable future. Ifthree and nine months ended September 30, 2021 and 2020.
Recently Adopted Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), as subsequently amended, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors), and replaces the existing guidance in ASC 840, Leases. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine the recognition pattern of lease expense over the term of the lease. In addition, a lessee is required to record (i) a right-of-use asset and a lease liability on its balance sheet for all leases with accounting lease terms of more than 12 months regardless of whether it is an operating or financing lease and (ii) lease expense in its consolidated statement of operations for operating leases and amortization and interest expense in its consolidated statement of operations for financing leases. Leases with a term of 12 months or less may be accounted for similar to existing guidance for operating leases under ASC 840. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), which added an optional transition method that allows companies to adopt the standard as of the beginning of the year of adoption as opposed to the earliest comparative period presented.
The Company early adopted the new leasing standard effective January 1, 2021, using the alternative modified retrospective transition approach applied to leases existing as of January 1, 2021. As a result, prior periods are presented in accordance with the previous guidance in ASC 840. The Company has elected to apply the package of practical expedients requiring no reassessment of whether any expired or existing contracts are or contain leases, the lease classification of any expired or existing leases, or the capitalization of initial direct costs for any existing leases. Additionally, the Company has elected not to separate lease and non-lease components and not to recognize leases with an initial term of twelve months or less.
The cumulative effect of the adoption of ASC 842 on the Company’s consolidated balance sheets as of January 1, 2021 was as follows (in thousands):
|
| Balance as of |
|
| Impact of |
|
| Balance as of |
| |||
|
| December 31, 2020 |
|
| Adoption |
|
| January 1, 2021 |
| |||
Prepaid expenses and other current assets |
| $ | 5,340 |
|
| $ | (26 | ) |
| $ | 5,314 |
|
Operating lease right-of-use assets |
| $ | — |
|
| $ | 5,664 |
|
| $ | 5,664 |
|
Total assets |
| $ | 310,676 |
|
| $ | 5,638 |
|
| $ | 316,314 |
|
Operating lease liabilities |
| $ | — |
|
| $ | 959 |
|
| $ | 959 |
|
Deferred rent, net of current portion |
| $ | 11 |
|
| $ | (11 | ) |
| $ | — |
|
Operating lease liabilities, net of current portion |
| $ | — |
|
| $ | 4,690 |
|
| $ | 4,690 |
|
Total liabilities |
| $ | 16,163 |
|
| $ | 5,638 |
|
| $ | 21,801 |
|
The adoption of ASC 842 did not have a material impact on the Company’s condensed consolidated statements of operations and comprehensive loss, statements of non-controlling interest, convertible preferred shares and shareholders’ equity (deficit) or statements of cash flows as of January 1, 2021.
In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”) as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. ASU 2019-12 removes certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of GAAP. The guidance is effective for the Company for interim and annual periods beginning after December 15, 2022, with early adoption permitted. We adopted ASU 2019-12 effective January 1, 2021. The adoption of ASU 2019-12 did not have a material impact on our development effortscondensed consolidated financial statements.
Recently Issued Accounting Pronouncements
The Company qualifies as “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012 and has elected to “opt in” to the extended transition related to complying with new or revised accounting standards, which means that when a standard is issued or revised and it has different application dates for our currentpublic and nonpublic companies, the Company will adopt the new or future product candidates are successfulrevised standard at the time nonpublic companies adopt the new or revised standard and will do so until such time that the Company either (i) irrevocably elects to “opt out” of such extended transition period or (ii) no longer qualifies as an emerging growth company. The Company may choose to early adopt any new or revised accounting standards whenever such early adoption is permitted for private companies.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in regulatory approval, we may generate revenueearlier recognition of credit losses. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which narrowed the scope and changed the effective date for non-public entities for ASU 2016-13. The FASB subsequently issued supplemental guidance within ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”). ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. This guidance is effective for the Company for annual periods beginning after December 15, 2022, including interim periods within that fiscal year. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-13 will have on its consolidated financial statements.
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides clarification and reduces diversity in accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This guidance is effective for annual periods beginning after December 15, 2021, including interim periods within that fiscal year. Companies should apply the future from product sales. We cannot predict if, whennew standard prospectively to modifications or to what extent weexchanges occurring after the effective date of the new standard. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2021-04 will generate revenue from the commercialization and sale of our product candidates. We may never succeed in obtaining regulatory approval for any of our product candidates.have on its consolidated financial statements.
3. | Collaboration Agreement |
Strategic Collaboration RevenueAgreement with AstraZeneca UK Limited
On October 30, 2020, wethe Company and AstraZeneca entered into a strategic collaboration agreement, or the AstraZeneca Agreement pursuant to which wethe Company and AstraZeneca will work to jointly discover, develop and commercialize next-generation alpha-emitting radiopharmaceuticals and combination therapies for the treatment of cancer globally by leveraging our TATthe Company’s Targeted Alpha Therapies, or TATs, platform and expertise in radiopharmaceuticals with AstraZeneca’s leading portfolio of antibodies and cancer therapeutics, including DDRis. The AstraZeneca Agreement consists of two distinct collaboration programs: novel TATs and combination therapies.DNA damage response inhibitors (“DDRis”). Each party retains full ownership over its existing assets.
WeThe AstraZeneca Agreement consists of 2 distinct collaboration programs: novel TATs and combination therapies. Under the AstraZeneca Agreement, the parties may develop up to three novel TATs (the “Novel TATs Collaboration”). The parties will also evaluate up to five potential combination strategies involving the Company’s existing assets, including the Company’s lead candidate FPI-1434, in combination with certain of AstraZeneca’s existing therapeutics for the treatment of various cancers (the “Combination Therapies Collaboration”).
The AstraZeneca Agreement expires on a TAT-by-TAT and combination-by-combination basis upon the later of the expiration of development and exclusivity obligations relating to such TAT or combination or, if such TAT or combination is commercialized as a product under the AstraZeneca Agreement, the expiration of the commercial life of such product. The Company and AstraZeneca can each terminate the AstraZeneca Agreement for the other party’s uncured material breach following the applicable notice period. Each of the Company and AstraZeneca may also terminate the AstraZeneca Agreement with respect to any TAT or combination product if such party determines that the continued development of such TAT or combination product is not commercially viable, or for a material safety issue with respect to such TAT or combination product.
Novel TATs Collaboration
As part of the Novel TATs Collaboration, the parties may develop up to three novel TATs. The Company and AstraZeneca will share development costs equally (with each party responsible for the cost of its own supply in connection with such development). Either party has the right to opt out of the co-development and co-commercialization arrangement at pre-determined timepoints and obtain exclusive rights to a novel TAT in exchange for milestone payments to the other party of up to $145.0 million per novel TAT and a low or high single-digit royalties on future sales (depending on the opt out time point). If neither party opts out, and unless otherwise agreed by the parties, AstraZeneca will lead worldwide commercialization activities for the novel TATs, subject to the Company’s option to co-promote the TATs in the U.S. All profits and losses resulting from such commercialization activities will be shared equally.
The Novel TATs Collaboration is within the scope of ASC 808 as the Company and AstraZeneca are both active participants in the research and development activities and are exposed to significant risks and rewards that are dependent on commercial success of the activities of the arrangement. The research and development activities are a unit of account under the scope of ASC 808 and are not promises to a customer under the scope of ASC 606.
The Company records its portion of the research and development expenses as the related expenses are incurred. All payments received or amounts due from AstraZeneca for reimbursement of shared costs are accounted for as an offset to research and development expense. For the three and nine months ended September 30, 2021, the Company incurred $1.6 million and $2.0 million, respectively, in gross research and development expenses relating to the Novel TATs Collaboration which was offset by $0.8 million and $1.0 million, respectively, in amounts due from AstraZeneca for reimbursement of shared costs. As of September 30, 2021, the Company recorded $0.9 million due from AstraZeneca for reimbursement of shared costs in prepaid expenses and other current assets.
Combination Therapies Collaboration
As part of the Combination Therapies Collaboration, the parties will evaluate up to five potential combination strategies involving the Company’s existing assets, including the Company’s lead candidate FPI-1434, in combination with certain of AstraZeneca’s existing therapeutics for the treatment of various cancers. The Company received an upfront payment of $5.0 million from AstraZeneca in December 2020 associated with the combination therapies program.Combination Therapies Collaboration. AstraZeneca will fully fund all research and development activities for the combination strategies, until such point as wethe Company may opt-in to the clinical development activities. We
The Company also havehas the right to opt-out of clinical development activities relating to these combination therapies. In such instance, wethe Company will be responsible for repaying ourits share of the development costs via a royalty on the additional combination sales only if ourits drug is approved on the basis of clinical development solely conducted by AstraZeneca, in which case the royalty payments shall also include a variable risk premium based on the number of ourthe Company’s product candidates thatto have received regulatory approval at that time. We are
Each party will have the sole right, on a country-by-country basis, to commercialize its respective contributed compound as a component of any combination therapy for which such party’s contributed compound may be commercialized under a separate marketing authorization from the other party’s contributed compound to such combination therapy. The parties will negotiate in good faith on a combination therapy-by-combination therapy basis the terms and conditions to co-commercialize any combination therapy that is to be commercialized under a single marketing authorization. During the period of time commencing with the inclusion of an available molecular target in the selection pool for development as a combination therapy and ending upon the end of the nomination period or earlier removal of such combination target from such pool, the Company will not undertake any preclinical or clinical
studies combining the Company’s TAT platform with any compound modulating the activity of such combination target. Following selection of a target under the AstraZeneca Agreement and payment of an exclusivity fee by AstraZeneca, and provided that AstraZeneca enrolls its first patient in a clinical trial as further defined in the AstraZeneca Agreement within a pre-defined period of time of such selection, the Company will not undertake any preclinical or clinical studies combining the Company’s TAT platform with compounds modulating the same combination target for the duration of the evaluation period for such combination target, as further defined in the AstraZeneca Agreement. Within a certain time period following initiation of the evaluation period with respect to a combination target, AstraZeneca has the exclusive right to undertake, alone or in collaboration with the Company, all further clinical or preclinical combination studies with respect to a combination target by paying certain exclusivity fees. The Company is eligible to receive future payments of up to $40.0 million, including those for the achievement of certain clinical milestones and exclusivity fees.
WeThe Company determined the research and development activities associated with the combination therapies, or the Combination Therapies Collaboration are a key component of ourits central operations and AstraZeneca has contracted with usthe Company to obtain goods and services which are an output of ourthe Company’s ordinary activities in exchange for consideration. Further, we dothe Company does not share the risks and rewards of the underlying research activities making AstraZeneca a customer for the Combination Therapies Collaboration which falls within the scope of ASC 606.
To determine the appropriate amount of revenue to be recognized under ASC 606, Revenue from Contracts with Customers,the Company performed the following steps: (i) identify the promised goods or ASC 606.services in the contract, (ii) determine whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract, (iii) measure the transaction price, including the constraint on variable consideration, (iv) allocate the transaction price to the performance obligations and (v) recognize revenue when (or as) the Company satisfies each performance obligation.
Under ASC 606 we accountthe Company accounts for (i) the license weit conveyed to AstraZeneca with respect to certain intellectual property and (ii) the obligations to perform research and development services as part of the Combination Therapies Collaboration as a single performance obligation under the AstraZeneca Agreement. We recognizeThe Company concluded AstraZeneca’s right to purchase exclusive options to obtain certain development, manufacturing and commercialization rights represent customer options that are not performance obligations as they do not contain any discounts or other rights that would be considered a material right in the arrangement. Such options will be accounted for upon AstraZeneca’s election.
The Company determined the transaction price under ASC 606 at the inception of the AstraZeneca Agreement to be the $5.0 million upfront payment. The cost reimbursement payments for all costs incurred by the Company under the Combination Therapies Collaboration represent variable consideration that is not constrained. Additionally, the clinical milestone payments represent variable consideration that is constrained. In making this assessment, the Company considered several factors, including the fact that achievement of the milestones are outside its control and contingent upon the future success of clinical trials and AstraZeneca’s actions. The payments related to the achievement of certain clinical milestones do not relate to separate, distinct performance obligations.
Under ASC 606, the Company recognizes revenue using the cost-to-cost method, which we believeit believes best depicts the transfer of control to the customer. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue is recorded as a percentage of the estimated transaction price based on the extent of progress towards completion. We recognize adjustments in revenue for changesUnder ASC 606, the estimated transaction price includes variable consideration that is not constrained. The Company does not include variable consideration to the extent that it is probable that a significant reversal in the estimated extentamount of cumulative revenue recognized will occur when any uncertainty associated with the variable consideration is resolved. The estimate of the Company’s measurement of progress towards completion underand estimate of variable consideration to be included in the transaction price will be updated at each reporting date as a change in estimate.
For the clinical milestone payments, the Company utilizes the most likely amount method to determine the amounts recognized and timing of recognition. Once the constraint is removed, the clinical milestone payments will be accounted for with the research and development services for the purposes of revenue recognition which will occur over time as the services are provided. Upon the achievement of any milestone for specified clinical development events, the Company will utilize the same cost-to-cost model with a cumulative catch-up method. Under this method, the impact of this adjustment on revenue recorded to date is recognized in the period in which any such event occurs.
The Company will re-evaluate the adjustment is identified.transaction price at the end of each reporting period and as uncertain events are resolved, or other changes in circumstances occur, adjust its estimate of the transaction price if necessary. As of December 31, 2020, the Company recorded the upfront fee as a contract liability for deferred revenue in its condensed consolidated balance sheet as it had yet to provide any services under the AstraZeneca Agreement.
The following table presents changes in the Company’s contract assets and liabilities for the nine months ended September 30, 2021 (in thousands):
|
| Balance as of |
|
|
|
|
|
|
|
|
|
| Balance as of |
| ||
|
| December 31, 2020 |
|
| Additions |
|
| Deductions |
|
| September 30, 2021 |
| ||||
Contract assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
| $ | — |
|
| $ | 300 |
|
| $ | — |
|
| $ | 300 |
|
Contract liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue |
| $ | 5,000 |
|
| $ | — |
|
| $ | (546 | ) |
| $ | 4,454 |
|
During the three and sixnine months ended JuneSeptember 30, 2021 weand 2020, the Company recognized $0.5the following revenue (in thousands):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Revenue recognized in the period from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts included in deferred revenue at the beginning of the period |
| $ | 146 |
|
| $ | — |
|
| $ | 546 |
|
| $ | — |
|
The current portion of deferred revenue and deferred revenue, net of current portion, are $2.3 million in collaborationand $2.2 million as of September 30, 2021, respectively, which reflects the Company’s estimate of the revenue underit expects to recognize within the next 12 months and beyond 12 months, respectively. The Company expects to recognize the revenue associated with the AstraZeneca Agreement in subsequent periods through the year ending December 31, 2024.
4. | Fair Value Measurements |
The following tables present information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis and indicates the level of the fair value hierarchy used to determine such fair values (in thousands):
|
| Fair Value Measurements as of September 30, 2021 Using: |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
| $ | 12,040 |
|
| $ | — |
|
| $ | — |
|
| $ | 12,040 |
|
U.S. Government agencies |
|
| — |
|
|
| 10,949 |
|
|
| — |
|
|
| 10,949 |
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
| — |
|
|
| 24,788 |
|
|
| — |
|
|
| 24,788 |
|
Corporate bonds |
|
| — |
|
|
| 28,365 |
|
|
| — |
|
|
| 28,365 |
|
Municipal bonds |
|
| — |
|
|
| 17,021 |
|
|
| — |
|
|
| 17,021 |
|
Canadian Government agencies |
|
| — |
|
|
| 5,682 |
|
|
| — |
|
|
| 5,682 |
|
U.S. Government agencies |
|
| — |
|
|
| 123,936 |
|
|
| — |
|
|
| 123,936 |
|
|
| $ | 12,040 |
|
| $ | 210,741 |
|
| $ | — |
|
| $ | 222,781 |
|
|
| Fair Value Measurements as of December 31, 2020 Using: |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Money market funds |
| $ | 19,277 |
|
| $ | — |
|
| $ | — |
|
| $ | 19,277 |
|
Commercial paper |
|
| — |
|
|
| 1,000 |
|
|
| — |
|
|
| 1,000 |
|
Corporate bonds |
|
| — |
|
|
| 950 |
|
|
| — |
|
|
| 950 |
|
Canadian Government agencies |
|
| — |
|
|
| 2,347 |
|
|
| — |
|
|
| 2,347 |
|
Investments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial paper |
|
| — |
|
|
| 34,471 |
|
|
| — |
|
|
| 34,471 |
|
Corporate bonds |
|
| — |
|
|
| 26,857 |
|
|
| — |
|
|
| 26,857 |
|
Municipal bonds |
|
| — |
|
|
| 1,090 |
|
|
| — |
|
|
| 1,090 |
|
Canadian Government agencies |
|
| — |
|
|
| 9,457 |
|
|
| — |
|
|
| 9,457 |
|
U.S. Government agencies |
|
| — |
|
|
| 137,089 |
|
|
| — |
|
|
| 137,089 |
|
|
| $ | 19,277 |
|
| $ | 213,261 |
|
| $ | — |
|
| $ | 232,538 |
|
During the nine months ended September 30, 2021 and the year ended December 31, 2020, there were no transfers between Level 1, Level 2 and Level 3.
5. | Investments |
Investments consisted of the following (in thousands):
|
| September 30, 2021 |
| |||||
|
| Amortized Cost |
|
| Fair Value |
| ||
Due within one year or less |
| $ | 154,155 |
|
| $ | 154,238 |
|
Due after one year through three years |
|
| 45,574 |
|
|
| 45,554 |
|
|
| $ | 199,729 |
|
| $ | 199,792 |
|
|
| December 31, 2020 |
| |||||
|
| Amortized Cost |
|
| Fair Value |
| ||
Due within one year or less |
| $ | 131,857 |
|
| $ | 131,882 |
|
Due after one year through three years |
|
| 77,063 |
|
|
| 77,082 |
|
|
| $ | 208,920 |
|
| $ | 208,964 |
|
As of September 30, 2021, the amortized cost and estimated fair value of investments, by contractual maturity, was as follows (in thousands):
|
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
|
| Current |
|
| Non-Current |
| ||||||
Commercial paper |
| $ | 24,787 |
|
| $ | 1 |
|
| $ | — |
|
| $ | 24,788 |
|
| $ | 24,788 |
|
| $ | — |
|
Corporate bonds |
|
| 28,327 |
|
|
| 43 |
|
|
| (5 | ) |
|
| 28,365 |
|
|
| 23,856 |
|
|
| 4,509 |
|
Municipal bonds |
|
| 17,023 |
|
|
| 2 |
|
|
| (4 | ) |
|
| 17,021 |
|
|
| 14,766 |
|
|
| 2,255 |
|
Canadian Government agencies |
|
| 5,637 |
|
|
| 45 |
|
|
| — |
|
|
| 5,682 |
|
|
| 4,578 |
|
|
| 1,104 |
|
U.S. Government agencies |
|
| 123,955 |
|
|
| 10 |
|
|
| (29 | ) |
|
| 123,936 |
|
|
| 86,250 |
|
|
| 37,686 |
|
|
| $ | 199,729 |
|
| $ | 101 |
|
| $ | (38 | ) |
| $ | 199,792 |
|
| $ | 154,238 |
|
| $ | 45,554 |
|
As of December 31, 2020, the amortized cost and estimated fair value of investments, by contractual maturity, was as follows (in thousands):
|
| Amortized Cost |
|
| Gross Unrealized Gains |
|
| Gross Unrealized Losses |
|
| Fair Value |
|
| Current |
|
| Non-Current |
| ||||||
Commercial paper |
| $ | 34,474 |
|
| $ | 1 |
|
| $ | (4 | ) |
| $ | 34,471 |
|
| $ | 34,471 |
|
| $ | — |
|
Corporate bonds |
|
| 26,855 |
|
|
| 22 |
|
|
| (20 | ) |
|
| 26,857 |
|
|
| 9,446 |
|
|
| 17,411 |
|
Municipal bonds |
|
| 1,090 |
|
|
| — |
|
|
| — |
|
|
| 1,090 |
|
|
| 1,090 |
|
|
| — |
|
Canadian Government agencies |
|
| 9,405 |
|
|
| 52 |
|
|
| — |
|
|
| 9,457 |
|
|
| 6,154 |
|
|
| 3,303 |
|
U.S. Government agencies |
|
| 137,096 |
|
|
| 8 |
|
|
| (15 | ) |
|
| 137,089 |
|
|
| 80,721 |
|
|
| 56,368 |
|
|
| $ | 208,920 |
|
| $ | 83 |
|
| $ | (39 | ) |
| $ | 208,964 |
|
| $ | 131,882 |
|
| $ | 77,082 |
|
6. | Prepaid Expenses and Other Current Assets |
Prepaid expenses and other current assets consisted of the following (in thousands):
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Prepaid external research and development expenses |
| $ | 3,446 |
|
| $ | 1,606 |
|
Prepaid insurance |
|
| 3,247 |
|
|
| 2,067 |
|
Prepaid software subscriptions |
|
| 434 |
|
|
| 146 |
|
Income tax receivable |
|
| 232 |
|
|
| — |
|
Interest receivable |
|
| 461 |
|
|
| 504 |
|
Other receivable due from AstraZeneca |
|
| 932 |
|
|
| — |
|
Canadian harmonized sales tax receivable |
|
| 360 |
|
|
| 290 |
|
Other |
|
| 311 |
|
|
| 727 |
|
|
| $ | 9,423 |
|
| $ | 5,340 |
|
7. | Accrued Expenses |
Accrued expenses consisted of the following (in thousands):
|
| September 30, 2021 |
|
| December 31, 2020 |
| ||
Accrued employee compensation and benefits |
| $ | 2,787 |
|
| $ | 2,551 |
|
Accrued external research and development expenses |
|
| 2,239 |
|
|
| 1,037 |
|
Accrued professional and consulting fees |
|
| 1,108 |
|
|
| 1,023 |
|
Other |
|
| 12 |
|
|
| 48 |
|
|
| $ | 6,146 |
|
| $ | 4,659 |
|
8. | Equity |
Common Shares
On June 19, 2020, the Company effected a one-for-5.339 reverse share split of its issued and outstanding common shares and a proportional adjustment to the existing conversion ratios for each class of the Company’s Preferred Shares and Preferred Exchangeable Shares. Accordingly, all share and per share amounts for all periods presented in the accompanying condensed consolidated financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this reverse share split and adjustment of the preferred share conversion ratios.
On June 30, 2020, the Company closed its IPO of common shares and issued and sold 12,500,000 shares of common shares at a public offering price of $17.00 per share, resulting in net proceeds of approximately $193.1 million after deducting underwriting fees and offering costs.
Upon the closing of the IPO, all outstanding voting and non-voting common shares were converted to a single class of common shares authorized by the Company’s articles of the corporation, as amended and restated.
On July 2, 2021, the Company entered into an Open Market Sales AgreementSM (the “Sales Agreement”) with Jefferies LLC to issue and sell shares of the Company’s common shares of up to $100.0 million in gross proceeds, from time to time during the term of
the Sales Agreement, through an “at-the-market” equity offering program under which Jefferies LLC will act as the Company’s agent and/or principal (the “ATM Facility”). The ATM Facility provides that Jefferies LLC will be entitled to compensation for its services in an amount of up to 3.0% of the gross proceeds of any shares sold under the ATM Facility. The Company has no obligation to sell any shares under the ATM Facility and may, at any time, suspend solicitation and offers under the Sales Agreement. As of September 30, 2021, the Company has 0t sold any shares under the Sales Agreement.
As of September 30, 2021, the Company’s articles of the corporation, as amended and restated, authorized the Company to issue unlimited common shares, each with no par value per share.
Each common share entitles the holder to one vote on all matters submitted to a vote of the Company’s shareholders. Common shareholders are entitled to receive dividends, if any, as may be declared by the board of directors. Through September 30, 2021, 0 cash dividends had been declared or paid by the Company.
Convertible Preferred Shares
Prior to the IPO, the Company issued Class A convertible preferred shares (the “Class A preferred shares”) and Class B convertible preferred shares (the “Class B preferred shares” and, together with the Class A preferred shares, the “Preferred Shares”). As of December 31, 2020, the Company’s articles of the corporation, as amended and restated, authorized the Company to issue an aggregate of 132,207,290 Preferred Shares, respectively, each with no par value per share.
In March 2019, the Company completed its first closing of its Class B preferred shares and issued and sold 30,207,129 Class B preferred shares at a price of $1.5154 per share for gross proceeds of $45.8 million (the “2019 Preferred Share Financing”).
In January 2020, the Company executed the First Amendment to the Class B Subscription Agreement (“Amended Class B Subscription Agreement”) whereby the Canada Pension Plan Investment Board (“CPP”) agreed to purchase an aggregate of $20.0 million of Class B preferred shares, at a price of $1.5154 per share, in two tranches. In January 2020, the Company issued and sold to CPP 6,598,917 Class B preferred shares, resulting in gross proceeds of $10.0 million (the “Additional Class B Closing”). The Company incurred issuance costs of $0.1 million in connection with this transaction.
The rights and preferences of the Class B preferred shares sold under the Additional Class B Closing were the same as the rights and preferences of the Class B preferred shares issued and sold by the Company in March 2019. Accordingly, under the terms of the Amended Class B Subscription Agreement, upon the earlier occurrence of a specified development or specified regulatory milestone, CPP was obligated to purchase an additional 6,598,917 Class B preferred shares at a price of $1.5154 per share. The Company concluded that these rights or obligations of CPP to participate in the Milestone Financing of Class B preferred shares met the definition of a freestanding financial instrument that was required to be recorded as a liability at fair value as (i) the instruments are legally detachable and separately exercisable from the Class B preferred shares and (ii) the rights will require the Company to transfer assets upon future closings of the Class B preferred shares.
Upon the Additional Class B Closing in January 2020, the Company recorded an additional liability for the preferred share tranche right of $1.1 million and a corresponding reduction to the carrying value of the Class B preferred shares.
In May 2020, the Company achieved the specified regulatory milestone associated with the Class B preferred share tranche right, which triggered the requirement of the Class B shareholders to participate in the Milestone Financing. Upon closing of the Milestone Financing on June 2, 2020, the Company issued and sold 36,806,039 Class B preferred shares at a price of $1.5154 per share for aggregate proceeds of $55.8 million.
The Class B preferred share tranche right liability was settled in connection with the achievement of the regulatory milestone associated with the Class B preferred share tranche right. Specifically, the fair value of the Class B preferred share tranche right liability was remeasured for the last time as of the Milestone Financing closing date, resulting in the Company recognizing a loss in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2020 of $32.7 million for the change in the fair value of the tranche right liability between December 31, 2019 and June 2, 2020. Immediately thereafter, the balance of the Class B preferred share tranche right liability of $39.6 million was reclassified to Class B convertible preferred shares in an amount of $35.3 million and to non-controlling interest in Fusion Pharmaceuticals (Ireland) Limited in an amount of $4.3 million on the consolidated balance sheet. For the nine months ended September 30, 2020, the Company recognized a loss of $32.7 million in the condensed consolidated statement of operations and comprehensive loss.
Operating Expenses
Research and Development Expenses
Research and development expenses consist primarily of costs incurred in connection withloss for the discovery and development of our product candidates. These expenses include:
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|
|
|
|
|
|
|
|
|
|
|
We expense research and development costs as incurred. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense when the goods have been delivered or the services have been performed, or when it is no longer expected that the goods will be delivered or the services rendered. Upfront payments under license agreements are expensed upon receipt of the license, and annual maintenance fees under license agreements are expensed in the period in which they are incurred. Milestone payments under license agreements are accrued, with a corresponding expense being recognized, in the period in which the milestone is determined to be probable of achievement and the related amount is reasonably estimable.
In connection with the AstraZeneca Agreement, we and AstraZeneca are both active participants in the research and development activities of the collaboration and we are exposed to significant risks and rewards that are dependent on commercial success of the activities of the arrangement with respect to the novel TATs program, or the Novel TATs Collaboration. As this
arrangement falls within the scope of ASC 808, Collaborative Arrangements, or ASC 808, all payments received or amounts due from AstraZeneca for reimbursement of shared costs are accounted for as an offset to research and development expense. For the three and six months ended June 30, 2021, we incurred $0.2 million and $0.3 million, respectively, in gross research and development expenses relating to the Novel TATs Collaboration which was offset by $0.1 million and $0.2 million, respectively, in amounts due from AstraZeneca for reimbursement of shared costs.
Our direct research and development expenses are tracked on a program-by-program basis for our product candidates and consist primarily of external costs, such as fees paid to outside consultants, CROs, CMOs and research laboratories in connection with our preclinical development, process development, manufacturing and clinical development activities. Our direct research and development expenses by program also include fees incurred under third-party license agreements. We do not allocate employee costs and costs associated with our discovery efforts, laboratory supplies and facilities, including depreciation or other indirect costs, to specific programs because these costs are deployed across multiple programs and our TAT platform and Fast-Clear linker technology and, as such, are not separately classified. We use internal resources primarily to conduct our research and discovery activities as well as for managing our preclinical development, process development, manufacturing and clinical development activities. These employees work across multiple programs and our technology platform and, therefore, we do not track these costs by program.
Research and development activities are central to our business model. Product candidates in later stages of clinical development generally have higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later-stage clinical trials. As a result, we expect that our research and development expenses will increase substantially over the next several years as we complete a Phase 1 clinical trial of FPI-1434 as a monotherapy in patients with solid tumors expressing IGF-1R, complete preclinical development and pursue initial stages of clinical development of our FPI-1434 combination therapies, and develop FPI-1966 and our other early-stage programs.
The successful development and commercialization of our product candidates are highly uncertain. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any of our product candidates. This is due to the numerous risks and uncertainties associated with product development, including the following:
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|
|
|
|
|
|
|
|
A change in the outcome of any of these variables with respect to the development of our product candidates could significantly change the costs and timing associated with the development of these product candidates. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. In addition, we may never succeed in obtaining regulatory approval for any of our product candidates.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and related costs, including share-based compensation, for personnel in executive, finance and administrative functions. General and administrative expenses also include direct and allocated facility-related costs as well as professional fees for legal, patent, consulting, investor and public relations, accounting and audit services.
We anticipate that our general and administrative expenses will increase in the future as we increase our headcount to support our continued research activities and development of our product candidates and technology platform. We also anticipate that we will incur increased accounting, audit, legal, regulatory, compliance and director and officer insurance costs as well as investor and public relations expenses associated with our continued growth as a public company.
Other Income (Expense)
Change in Fair Value of Preferred Share Tranche Right Liability
In connection with our Class B preferred share financings in March 2019 and January 2020, we issued shares under subscription agreements that provided investors the right, or obligated investors, to participate in subsequent offerings of either (i) Class B preferred shares or (ii) Class B preferred exchangeable shares together with Class B special voting shares in the event that specified development or regulatory milestones were achieved or upon the vote of at least two-thirds of the holders of the Class B preferred shares and Class B special voting shares. We classified this Class B preferred share tranche right as a liability on our consolidated balance sheets. We remeasured this preferred share tranche right to fair value at each reporting date and recognized changes in the fair value of the preferred share tranche right liability asliability.
Upon the closing of the IPO, the Company converted the then outstanding Class A and Class B preferred shares into common shares at a componentconversion ratio of other income (expense) in our consolidated statements5.339 Preferred Share to one common share.
Preferred Exchangeable Shares and Special Voting Shares
In connection with each issuance and sale of operationsits Class A preferred shares and comprehensive loss. We continuedClass B preferred shares, the Company’s Irish subsidiary issued and sold Class A and Class B preferred exchangeable shares (together, the “Preferred Exchangeable Shares”) to recognize changes ininvestors. Simultaneously with the fairissuance and sale of the Preferred Exchangeable Shares, the Company issued and sold its Class A and Class B special voting shares (together, the “Special Voting Shares”) to the same investors. Prior to the IPO, the Company’s Irish subsidiary’s amended constitution authorized it to issue an aggregate of 28,874,378 Preferred Exchangeable Shares and 29,747,987 Preferred Exchangeable Shares, respectively, with a par value of this preferred share tranche right liability until$0.001 per share. Prior to the preferred share tranche right was settled on June 2, 2020IPO, the Company’s articles of the corporation, as amended and restated, authorized the Company to issue an aggregate of 28,874,378 Special Voting Shares and 29,747,987 Special Voting Shares, respectively, with a cash redemption value of $0.000001 per share.
In March 2019, in connection with the achievementfirst closing of Class B preferred shares, as described above, the Company’s Irish subsidiary issued and sold 4,437,189 Class B preferred exchangeable shares at a price of $1.5154 per share and the Company issued and sold 4,437,189 Class B special voting shares at a price of $0.000001 per share for aggregate gross proceeds of $6.7 million (the “2019 Preferred Exchangeable Share Financing”).
In May 2020, the Company achieved the specified regulatory milestone. Upon the settlement of the preferred share tranche right,milestone associated with the Class B preferred share tranche right, was remeasuredwhich triggered the requirement of the Class B shareholders to fair value forparticipate in the last time andMilestone Financing. Upon closing of the change in fair value was recognized as a component of other income (expense) in our consolidated statement of operations and comprehensive loss. As a result, in periods subsequent toMilestone Financing on June 2, 2020, we will no longer recognize changes in the preferredCompany issued and sold 4,437,189 Class B special voting shares at a price of $0.000001 per share tranche right liability in our condensed consolidated statements of operations and comprehensive loss.
Change in Fair Value of Preferred Share Warrant Liability
In connection with ourthe Company’s Irish subsidiary issued and sold 4,437,189 Class B preferred exchangeable shares at a price of $1.5154 per share, financing infor aggregate gross proceeds of $6.7 million.
Upon the closing of the IPO, the Company converted all of the outstanding Class A and Class B preferred exchangeable shares and Special Voting Shares into Class A and Class B preferred shares on a one-for-one basis then converted the Class A and Class B preferred shares into common shares at a conversion ratio of 5.339 Preferred Share to one common share.
Warrants |
In January 2020, wein conjunction with the Company’s execution of the Amended Class B Subscription Agreement, the Company issued to the existing holders of Class B convertible preferred shares (excluding the investor in the Additional Class B Closing in January 2020 financing)2020) warrants to purchase 3,126,391 of our Class B convertible preferred shares, at an exercise price of $1.5154 per share, and weFusion Pharmaceuticals (Ireland) Limited issued to the existing holders of Class B preferred exchangeable shares warrants to purchase 873,609 Class B preferred exchangeable shares. We classify theseshares, at an exercise price of $1.5154 per share (collectively the “Preferred Share Warrants”). If the warrants to purchase Class B preferred exchangeable shares andare exercised, at that same time, the shareholder is obligated to purchase from the Company an equal number of Class B preferred exchangeablespecial voting shares at a price of $0.000001 per share. The Preferred Share Warrants were issued for no consideration, and the specified exercise prices of each warrant are subject to adjustment for share dividends, share splits, combination or other similar recapitalization transactions as a liability on our consolidated balance sheets. We remeasure these preferred share warrants to fair value at each reporting date and recognize changes inprovided under the fair valueterms of the preferred share warrant liability as a component of other income (expense) in our consolidated statements of operations and comprehensive loss. We will continue to recognize changes in the fair value of this preferred share warrant liability until each respective preferred share warrant is exercised, expires or qualifies for equity classification. warrants.
The preferred share warrantsPreferred Share Warrants were immediately exercisable and expire two years from the date of issuance or upon the earlier occurrence of specified qualifying events, which include the consummation of a deemed liquidation eventDeemed Liquidation Event and the closing of a qualifying share sale.sale (as defined in the articles of the corporation, as amended and restated). Upon the closing of a qualified public offering, on specified terms, all outstanding warrants to purchase Class B convertible preferred shares of the Company and warrants to purchase Class B preferred exchangeable shares of Fusion Pharmaceutics (Ireland) Limited will become warrants to purchase common shares of the Company.
Upon issuance of the Preferred Share Warrants in January 2020, the Company recorded on its consolidated balance sheet a preferred share warrant liability of $1.4 million, equal to the issuance-date fair value of the Preferred Share Warrants, as well as a corresponding decrease of $1.3 million to additional paid-in capital, reducing that to zero, and an increase of $0.1 million to accumulated deficit for the remainder.
The issuance of the Preferred Share Warrants was treated as a deemed dividend to existing preferred shareholders for purposes of the Company’s calculation of net loss per share attributable to common shareholders, and, as such, the aggregate value of the dividend to existing preferred shareholders was deducted from the Company’s net loss when computing net loss per share attributable to common shareholders (see Note 12). The Company remeasures the fair value of the liability associated with the Preferred Share Warrants at each reporting date and records any adjustments as a component of other income (expense) in the consolidated statements of operations and comprehensive loss. Upon the closing of the IPO, the warrants to purchase our3,126,391 of its convertible preferred shares and warrants to purchase 873,609 preferred exchangeable shares of ourthe Company’s Irish subsidiary were converted into warrants to purchase 749,197 shares of ourthe Company’s common shares.shares at an exercise price of $8.10 per share. As a result, the warrant liability was remeasured a final time on the closing date of the IPO and reclassified to shareholders’ equity (deficit) as the change in fair value waswarrants
qualify for equity classification. For the nine months ended September 30, 2020, the Company recognized a loss of $6.4 million as a component of other income (expense) in ourthe condensed consolidated statement of operations and comprehensive loss to reflect an increase in fair value of the Preferred Share Warrant.
On August 17, 2020, a holder of common share warrants exercised 97,381 common share warrants through a cashless exercise and the Company issued 38,340 common shares with the remaining 59,041 warrants being cancelled to settle the exercise price. As of September 30, 2021, 651,816 common share warrants remained outstanding.
9. | Share-based Compensation |
2020 Stock Option and Incentive Plan
On June 18, 2020, the Company’s board of directors adopted the 2020 Stock Option and Incentive Plan (the “2020 Plan”), which became effective on June 24, 2020. The 2020 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, restricted stock units, restricted stock awards, unrestricted stock awards, cash-based awards and dividend equivalent rights to the Company’s officers, employees, non-employee directors and consultants. The number of shares initially reserved for issuance under the 2020 Plan was 4,273,350, which was cumulatively increased on January 1, 2021 and shall be cumulatively increased each January 1 thereafter by 4% of the number of the Company’s common shares outstanding on the immediately preceding December 31 or such lesser number of shares determined by the Company’s compensation committee of the board of directors. The common shares underlying any awards that are forfeited, cancelled, held back upon exercise or settlement of an award to satisfy the exercise price or tax withholding, reacquired by the Company prior to vesting, satisfied without the issuance of shares, expire or are otherwise terminated (other than by exercise) under the 2020 Plan and the 2017 Plan will be added back to the common shares available for issuance under the 2020 Plan. The total number of common shares reserved for issuance under the 2020 Plan was 6,151,833 shares as of September 30, 2021.
As of September 30, 2021, 2,575,208 shares, remained available for future grant under the 2020 Plan. Shares that are expired, forfeited, canceled or otherwise terminated without having been fully exercised will be available for future grant under the 2020 Plan.
2017 Equity Incentive Plan
The Company’s 2017 Equity Incentive Plan (the “2017 Plan”) provides for the Company to grant incentive stock options or nonqualified stock options, restricted share awards and restricted share units to employees, officers, directors and non-employee consultants of the Company.
As of September 30, 2021 and December 31, 2020, 0 shares remained available for future grant under the 2017 Plan. Shares that are expired, forfeited, canceled or otherwise terminated without having been fully exercised will be available for future grant under the 2020 Plan.
2020 Employee Share Purchase Plan
On June 18, 2020, the Company’s board of directors adopted the 2020 Employee Share Purchase Plan (the “ESPP”), which became effective on June 24, 2020. A total of 450,169 common shares were reserved for issuance under this plan. In addition, the number of common shares that may be issued under the ESPP was automatically increased on January 1, 2021 and shall be automatically increased each January 1 thereafter by the lesser of (i) 900,338 common shares, (ii) 1% of the number of the Company’s common shares outstanding on the immediately preceding December 31 and (iii) such lesser number of shares as determined by the Company’s compensation committee of the board of directors. As of September 30, 2021, 15,596 shares were issued under the ESPP. The total number of common shares reserved for issuance under the ESPP was 867,427 shares as of September 30, 2021.
Stock Option Valuation
The fair value of stock option grants is estimated using the Black-Scholes option-pricing model. The Company historically has been a private company and lacks company-specific historical and implied volatility information. Therefore, it estimates its expected share volatility based on the historical volatility of a publicly traded set of peer companies and expects to continue to do so until such time as it has adequate historical data regarding the volatility of its own traded share price. For options with service-based vesting conditions, the expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options. The expected term of stock options granted to non-employee consultants is equal to the contractual term of the option award. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.
The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Risk-free interest rate |
|
| 1.02 | % |
|
| 0.33 | % |
|
| 0.85 | % |
|
| 0.70 | % |
Expected term (in years) |
|
| 6.1 |
|
|
| 6.0 |
|
|
| 6.1 |
|
|
| 6.0 |
|
Expected volatility |
|
| 66.9 | % |
|
| 67.0 | % |
|
| 66.9 | % |
|
| 65.5 | % |
Expected dividend yield |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
Stock Options
The following table summarizes the Company’s stock option activity since December 31, 2020:
|
| Number of Shares |
|
| Weighted- Average Exercise Price |
|
| Weighted- Average Remaining Contractual Term |
|
| Aggregate Intrinsic Value |
| ||||
|
|
|
|
|
|
|
|
|
| (in years) |
|
| (in thousands) |
| ||
Outstanding as of December 31, 2020 |
|
| 5,607,244 |
|
| $ | 6.45 |
|
|
| 8.2 |
|
| $ | 36,628 |
|
Granted |
|
| 2,750,600 |
|
|
| 10.29 |
|
|
|
|
|
|
|
|
|
Exercised |
|
| (411,467 | ) |
|
| 1.19 |
|
|
|
|
|
|
|
|
|
Forfeited/cancelled |
|
| (297,089 | ) |
|
| 11.36 |
|
|
|
|
|
|
|
|
|
Outstanding as of September 30, 2021 |
|
| 7,649,288 |
|
| $ | 7.92 |
|
|
| 8.3 |
|
| $ | 18,916 |
|
Vested and expected to vest as of September 30, 2021 |
|
| 7,512,688 |
|
| $ | 7.85 |
|
|
| 8.3 |
|
| $ | 18,916 |
|
Options exercisable as of September 30, 2021 |
|
| 2,814,127 |
|
| $ | 4.37 |
|
|
| 7.1 |
|
| $ | 13,773 |
|
The aggregate intrinsic value of options is calculated as the difference between the exercise price of the stock options and the fair value of the Company’s common shares for those options that had exercise prices lower than the fair value of the Company’s common shares. The intrinsic value for stock options exercised during the nine months ended September 30, 2021 was $3.3 million. The weighted-average grant-date fair value of stock options granted during the nine months ended September 30, 2021 and 2020 was $6.17 and $11.54 per share, respectively.
Share-based Compensation
Share-based compensation expense was classified in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2021 |
|
| 2020 |
|
| 2021 |
|
| 2020 |
| ||||
Research and development expenses |
| $ | 728 |
|
| $ | 288 |
|
| $ | 1,913 |
|
| $ | 506 |
|
General and administrative expenses |
|
| 1,646 |
|
|
| 953 |
|
|
| 4,324 |
|
|
| 1,519 |
|
|
| $ | 2,374 |
|
| $ | 1,241 |
|
| $ | 6,237 |
|
| $ | 2,025 |
|
As of September 30, 2021, total unrecognized share-based compensation expense related to unvested share-based awards was $25.4 million, which is expected to be recognized over a weighted-average period of 2.8 years. Additionally, as of September 30, 2021, the Company has unrecognized share-based compensation expense related to unvested stock options with performance-based vesting conditions for which performance has not been deemed probable of $1.0 million.
10. | License Agreements and Asset Acquisitions |
License Agreement with the Centre for Probe Development and reclassifiedCommercialization Inc.
In November 2015, the Company entered into a license agreement with the Centre for Probe Development and Commercialization Inc. (“CPDC”), a related party (see Note 15) (the “CPDC Agreement”). Under the agreement, the Company was granted an exclusive, sublicensable, nontransferable, worldwide license under CPDC’s patent rights related to shareholders’ equity (deficit)CPDC’s radiopharmaceutical linker technology to develop, market, make, use and sell certain products for all disease indications and uses in humans, whether diagnostic or therapeutic. The Company has the right to grant sublicenses of its rights. The CPDC Agreement was amended in 2017; however, there were no material changes to the terms of the CPDC Agreement. Also in 2017, the Company entered into a second license agreement with CPDC, under which the Company was granted an exclusive, sublicensable, worldwide license under CPDC’s patent rights related to certain CPDC radiopharmaceutical linker technology to develop, market, make, use and sell certain products for all disease indications and uses in humans. The Company has the right to grant sublicenses of its rights.
The Company has no obligations under any of the agreements with CPDC to make any milestone payments or to pay any royalties or annual maintenance fees to CPDC.
During the three and nine months ended September 30, 2021 and 2020, the Company did 0t make any payments to CPDC or recognize any research and development expenses under the license agreements with CPDC.
License Agreement with ImmunoGen, Inc.
In December 2016, the Company entered into a license agreement with ImmunoGen, Inc. (“ImmunoGen”) (the “ImmunoGen Agreement”). Under the agreement, the Company was granted an exclusive, sublicensable, worldwide license under ImmunoGen’s patent rights to use, develop, manufacture and commercialize any radiopharmaceutical conjugate that includes a certain compound and any resulting commercialized products. The Company has the right to grant sublicenses of its rights.
Under the ImmunoGen Agreement, the Company paid an upfront fee of $0.2 million to ImmunoGen. In addition, the Company is obligated to make aggregate milestone payments to ImmunoGen of up to $15.0 million upon the achievement of specified development and regulatory milestones and of up to $35.0 million upon the achievement of specified sales milestones. The Company is also obligated to pay tiered royalties of a low to mid single-digit percentage based on annual net sales by the Company and any of its affiliates and sublicensees. Royalties will be paid by the Company on a country-by-country basis beginning upon the first commercial sale in such country until ten years following the date of the first commercial sale in the United States and five years following the date of the first commercial sale in all non-U.S. countries. In addition, the Company is responsible for all costs and expenses incurred related to the development, manufacture, regulatory approval and commercialization of all licensed products.
Prior to regulatory approval of a licensed product in any country, the Company has the right to terminate the agreement upon 90 days’ prior written notice to ImmunoGen. Upon receipt of its first regulatory approval of a licensed product in any country, the Company has the right to terminate the agreement upon 180 days’ prior written notice to ImmunoGen. If the Company or ImmunoGen fails to comply with any of its obligations or otherwise breaches the agreement, the other party may terminate the agreement. The ImmunoGen Agreement expires upon the expiration date of the last-to-expire royalty term.
During the three and nine months ended September 30, 2021 and 2020, the Company did 0t make any payments to ImmunoGen or recognize any research and development expenses under the ImmunoGen Agreement.
Asset Acquisition from and License Agreement with MediaPharma S.r.l.
In May 2019, the Company and MediaPharma S.r.l. (“MediaPharma”) entered into an asset acquisition and license agreement. Under the agreement, the Company purchased all right, title and interest to MediaPharma’s, and any of its affiliates’ and sublicensees’, patents to perform research and to develop, manufacture and commercialize a specified antibody that binds to targets for the prevention, treatment and diagnosis of all diseases and conditions. The Company accounted for this purchase as an asset acquisition. At the same time, the Company granted MediaPharma an exclusive, fully paid, worldwide, sublicensable license to use the specified compound for research, development, manufacturing and commercialization of a bispecific antibody drug conjugate, but not for use as a radiopharmaceutical.
In connection with the asset acquisition, the Company paid an upfront fee of $0.2 million to MediaPharma. In addition, the Company is obligated to make aggregate milestone payments to MediaPharma of up to $1.5 million upon the achievement of specified development milestones and of up to $23.0 million upon the achievement of specified sales milestones. The Company is also obligated to pay royalties of a low single-digit percentage based on annual net sales by the Company. Royalties will be paid by the Company on a country-by-country basis beginning upon the first commercial sale in such country and will expire, on a country-by-country basis, upon the earlier of (i) eight years from the first commercial sale of a licensed product in such country, (ii) the date upon
which all issued patents under the agreement have expired or (iii) the date upon which a product highly similar in composition to the licensed product and having no clinically meaningful differences is sold or marketed for sale in such country by a third party.
The Company is not entitled to any payments from MediaPharma for use of the license to the specified compound granted to MediaPharma.
During the three and nine months ended September 30, 2021 and 2020, the Company did 0t make any payments to MediaPharma or recognize any research and development expenses under the MediaPharma Agreement.
Asset Acquisition from Rainier Therapeutics, Inc. and License Agreement with Genentech, Inc.
On March 10, 2020 (the “Closing”), the Company and Rainier Therapeutics, Inc. (“Rainier”) entered into an asset acquisition agreement (the “Rainier Agreement”). Under the agreement, the Company purchased all rights, title and interest to Rainier’s, and any of its affiliates’ and sublicensees’, patents and other tangible and intangible assets to perform research and to develop, manufacture and commercialize a specified compound of antibody molecules that bind to targets for the prevention, treatment and diagnosis of all diseases and conditions only using such compound as an antibody drug conjugate. The Company concluded to account for this purchase as an asset acquisition as substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset, the license rights.
In connection with the asset acquisition, the Company paid an upfront fee of $1.0 million to Rainier and recognized this amount as research and development expense in the condensed consolidated statement of operations and comprehensive loss during the three months ended March 31, 2020, as the warrants qualifyIPR&D acquired had no alternative future use as of the acquisition date.
Unless the Rainier Agreement was terminated pursuant to its terms, which termination initially could not have occurred later than eight months following the Closing (the “Outside Date”), the Company was obligated to pay Rainier an additional amount of $3.5 million and to issue 313,359 of the Company’s common shares on the Outside Date. If the Rainier Agreement was not terminated by the Outside Date, the Company is also obligated to make aggregate milestone payments to Rainier of up to $22.5 million and to issue up to 156,679 of the Company’s common shares upon the achievement of specified development and regulatory milestones, of which a $2.0 million milestone payment and the issuance of 156,679 common shares are due upon the first patient dosed in a Phase 1 study of FPI-1966, and of up to $42.0 million upon the achievement of specified sales milestones.
In the event the Company enters into a transaction with a non-affiliated party relating to the license or sale of substantially all the Company’s rights to develop the specified compound of antibody molecules, the Company will be obligated to pay Rainier a specified percentage of the revenue from such transaction, in an amount ranging from 10% to 30%, based on how long after the Closing the transaction takes place.
The Rainier Agreement could have been terminated at any time prior to the Outside Date upon 30 days’ notice by the Company to Rainier or upon the mutual written consent of both parties. On October 8, 2020, the Company and Rainier entered into a first amendment to the Rainier Agreement (the “First Amended Rainier Agreement”) to extend certain terms of the Rainier Agreement. Specifically, the Outside Date was amended such that termination may not occur later than eleven months following the Closing, or February 10, 2021 (the “Revised Outside Date”). On February 8, 2021, the Company and Rainier entered into a second amendment to the First Amended Rainier Agreement, as amended (the “Second Amended Rainier Agreement”). Pursuant to the Second Amended Rainier Agreement, the Outside Date was further amended such that termination may not occur later than July 1, 2021, and such amendment was made in consideration for equity classification.early payment of the additional $3.5 million owed to Rainier which the Company paid and recorded as research and development expense during the three months ended March 31, 2021. On May 26, 2021, the Company notified Rainier of its intent to continue development of the asset and issued 313,359 of its common shares to Rainier on July 1, 2021.
Interest Income (Expense)During the three months ended September 30, 2021, the Company did 0t recognize any research and development expense associated with the Second Amended Rainier Agreement. During the nine months ended September 30, 2021, the Company recognized $6.1 million of research and development expense associated with the payment of $3.5 million and the issuance of 313,359 of its common shares as noted above. During the nine months ended September 30, 2020, the Company paid an upfront fee of $1.0 million to Rainier and recognized this as an expense as noted above.
In connection with the Rainier Agreement, in March 2020, the Company was assigned all of Rainier’s rights and obligations under an exclusive license agreement between BioClin Therapeutics, Inc. and Genentech, Inc. (“Genentech”) (the “Genentech License Agreement”). Pursuant to the Genentech License Agreement, the Company has an exclusive, worldwide, sublicensable license to make, use, research, develop, sell and import certain intellectual property and technology of Genentech relating to a specified antibody and any mutant antibody thereof (the “Licensed Antibodies”), Netincluding any products that contain a Licensed Antibody as an active ingredient (the “Products”), for all human uses.
Pursuant to the Genentech License Agreement, the Company is obligated to use commercially reasonable efforts to develop and commercialize at least one Product and the Company is solely responsible for the costs associated with the development, manufacturing, regulatory approval and commercialization of any Products. The manufacture of the antibody by any third-party contract manufacturing organization must be approved in advance by Genentech. Additionally, Genentech retains the right to use the Licensed Antibodies solely to research and develop molecules other than the Licensed Antibodies.
Interest income (expense),Under Genentech License Agreement, the Company is obligated to make aggregate milestone payments to Genentech of up to $44.0 million upon the achievement of specified sales milestones. The Company is also obligated to pay to Genentech tiered royalties of a mid to high single-digit percentage based on annual net consists primarilysales by the Company, and any of interest income earnedits affiliates and sublicensees, for the specified compound of antibody molecules and of a mid to high single-digit percentage based on our cash, cash equivalentsannual net sales by the Company, and investment balancesany of its affiliates and sublicensees, for any other compound containing mutant antibody molecules of the specified compound. In addition, the Company is obligated to pay to Genentech royalties of a low single-digit percentage based on quarterly net sales in any country in which the specified compound is not covered by a valid patent claim, and those sales will not be subject to the tiered royalties described above. All royalties may be reduced if the Company obtains a license under a third-party patent that includes the specified compound. Royalties will be paid by the Company on a country-by-country basis beginning upon the first commercial sale in such country until the later of (i) ten years following the date of the first commercial sale of a Product or (ii) the date the specified compound is no longer covered by an enforceable patent. Upon the expiration of the royalty term, the Company will have a fully paid-up license.
The Company has the right to terminate the Genentech License Agreement upon written notice to Genentech if the Company determines in its sole discretion that development or commercialization of Products is not economically or scientifically feasible or appropriate. In addition, if the Company or Genentech fails to comply with any of its obligations or otherwise breaches the agreement, the other party may terminate the agreement. The Genentech License Agreement expires on the date on which all obligations under the agreement related to milestone payments or royalties have passed or expired.
During the three and nine months ended September 30, 2021 and 2020, the Company did 0t make any payments to Genentech or recognize any research and development expenses under the Genentech License Agreement.
Master Services and License Agreement with Yumab GmbH
On May 15, 2020, the Company entered into a master services and license agreement (the “Yumab Agreement”) with Yumab GmbH (“Yumab”). Under the agreement, Yumab will assist the Company in discovering and developing certain antibodies from certain cell lines owned by Yumab. The Company plans to use the discovered antibodies in preclinical and clinical development. Under the Yumab Agreement, the Company is obligated to pay for services performed as defined in work orders under the agreement. In addition, the Company is obligated to make aggregate milestone payments to Yumab of up to $3.9 million upon the achievement of specified development and regulatory milestones.
During the three and nine months ended September 30, 2021, the Company did 0t make any payments to Yumab or recognize any research and development expenses under the Yumab Agreement. During the three and nine months ended September 30, 2020, the Company recognized $0.2 million as research and development expense in the consolidated statements of operations and comprehensive loss under the Yumab Agreement.
Collaboration Agreement and Supply Agreement with TRIUMF Innovations, Inc.
On December 10, 2020, the Company entered into a Collaboration Agreement and Supply Agreement with TRIUMF Innovations Inc. and TRIUMF JV (collectively, “the TRIUMF entities”) for the development, production and supply of actinium-225 to the Company. Under the Collaboration Agreementas executed in December 2020, the Company is obligated to pay the TRIUMF entities an aggregate of $5.0 million CAD upon the achievement of certain milestones. The Collaboration Agreement contemplated that the parties would enter into an amendment thereto to expand the scope of the project and provide for additional milestone payments.
As of September 30, 2021, the TRIUMF entities had achieved certain milestones under the Collaboration Agreement totaling $3.0 million CAD (equivalent to $2.3 million at the time of payment) which was paid during the nine months ended September 30, 2021 and are being amortized as research and development expense over the period of performance by the TRIUMF entities. During the three and nine months ended September 30, 2021, the Company recognized the amortization of premiums or accretion$0.5 million and $1.4 million, respectively, as research and development expense under the Collaboration Agreement.
As previously contemplated, on August 12, 2021, the parties amended the Collaboration Agreement in order to expand the scope of discounts associatedthe project and the Company agreed to make an additional financial investment of up to $15.0 million CAD in connection with our investments. We expect that our interest income will fluctuate based on the timing and ability to raise additional funds as well as the amount of expenditures for our clinical development of FPI-1434 and ongoing business operations.new process technology for the manufacture of actinium-225 upon the achievement of certain milestones under
Refundable Investment Tax Credits
Refundable investment tax credits consist of paymentsan amendment to the Collaboration Agreement (the “Amended Collaboration Agreement”). In connection with the Amended Collaboration Agreement, the parties have formed a company (“NewCo”) to hold certain intellectual property derived from the Canadian governmentcollaboration. NewCo is jointly owned and managed by the Company and the TRIUMF entities and its purpose is to manufacture actinium-225 for our scientificthe research, clinical and experimental development expenditures. We recognize such refundable investment tax creditscommercial needs of the Company, and in certain circumstances, other third parties. The supply of actinium-225 by NewCo to the year thatCompany shall be done under a commercial supply agreement, to be negotiated by NewCo and the qualifying expenditures are made, provided that thereCompany. The Company is reasonable assurance of recoverability, based on our estimates of amounts expected to be recovered. We do not expectpurchase at least 50% of its annual actinium-225 requirements from NewCo, unless NewCo is unable to qualify for refundable investment tax credits fromsupply such necessary quantities to the Canadian government forCompany, in which case the Company may use other actinium-225 suppliers to meet its commercial needs.
As of September 30, 2021, the TRIUMF entities had achieved certain milestones under the Amended Collaboration Agreement totaling $5.0 million CAD (equivalent to $3.9 million at the time of payment) which was paid during the three and sixnine months ended JuneSeptember 30, 2021 and is being amortized as research and development expense over the period of performance by the TRIUMF entities. During the three and nine months ended September 30, 2021, the Company did 0t recognize any research and development expense under the Amended Collaboration Agreement.
The Company recorded $2.2 million and $2.7 million of milestone payments in prepaid expenses and other current assets and other non-current assets, respectively, as of September 30, 2021 based on its estimate of costs to be incurred over the 12 months following the balance sheet date for both the Collaboration Agreement and the Amended Collaboration Agreement.
Asset Acquisition from Ipsen Pharma SAS
On March 1, 2021, the Company and Ipsen Pharma SAS (“Ipsen”) announced that the parties had entered into an asset purchase agreement (the “Ipsen Agreement”) whereby the Company agreed to acquire Ipsen’s intellectual property and assets related to IPN-1087, a small molecule targeting neurotensin receptor 1 (“NTSR1”), a protein expressed on multiple solid tumor types. The Company intends to combine its expertise and proprietary TAT platform with IPN-1087 to create an alpha-emitting radiopharmaceutical targeting solid tumors expressing NTSR1. The Company and Ipsen submitted a pre-merger notification and report form with the United States Federal Trade Commission and the Antitrust Division of the United States Department of Justice in accordance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). The acquisition closed after completion of this antitrust review on April 1, 2021. The Company concluded to account for this purchase as an asset acquisition as substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset, the license rights.
Upon closing of the asset acquisition, the Company paid €0.6 million ($0.8 million at the date of payment) and issued an aggregate of 600,000 common shares to Ipsen under a share purchase agreement which was entered into concurrently with the Ipsen Agreement. Such common shares were issued pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). The Company is also obligated to pay Ipsen up to an additional €67.5 million upon the achievement of certain development and regulatory milestones; low single digit royalties on potential future periods.net sales; and up to €350.0 million in net sales milestones, in each case, relating to products covered by the asset purchase agreement. The Company is responsible for paying to a third-party licensor up to a total of €70.0 million in development milestones for up to three indications and mid to low double-digit royalties on potential future net sales of products covered by the license agreement.
Other Income (Expense)During the three months ended September 30, 2021, the Company did 0t make any payments to Ipsen or recognize any research and development expenses under the Ipsen Agreement. During the nine months ended September 30, 2021, the Company recognized $6.4 million of research and development expense associated with the issuance of 600,000 of its common shares upon closing pursuant to the Ipsen Agreement. Additionally, during the nine months ended September 30, 2021, the Company paid $0.8 million which was recognized as research and development expense.
The Ipsen Agreement includes a royalty step down whereby royalties owed to Ipsen will be reduced by certain percentages not to exceed 50%, Netin the aggregate, of the royalty owed under certain circumstances relating to loss of patent exclusivity, loss of regulatory exclusivity or generics entering a market. Under the asset purchase agreement Ipsen has agreed not to develop a molecule that targets NTSR1 and combines at least one NTSR1 binding moiety and a radionuclide or cytotoxic agent until the earlier of (i) the seventh anniversary of the closing date or (ii) the date of data base lock after completion of the first phase 3 clinical trial for IPN-1087.
Other income (expense), net primarily consistsAgreement with Merck & Co.
On May 5, 2021, the Company entered into an agreement with two subsidiaries of foreign currency transaction gainsMerck & Co. (“Merck”). Pursuant to the agreement, Merck will provide to the Company, at no cost, its anti-PD-1 (programmed death receptor-1) therapy, KEYTRUDA® (pembrolizumab) to evaluate in combination with the Company’s lead candidate, FPI-1434. The planned Phase 1 combination trial will evaluate safety, tolerability and losses as well as miscellaneous incomepharmacokinetics of FPI-1434 in combination with pembrolizumab and expense unrelatedis expected to our core operations.initiate
approximately six to nine months after achieving the recommended Phase 2 dose in the ongoing Phase 1 study of FPI-1434 monotherapy. Under the agreement, the Company will sponsor, fund and conduct the combination trial in accordance with an agreed-upon protocol and Merck agreed to manufacture and supply its compound, at its cost and for no charge to the Company, for use in the clinical trial.
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In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model. It also eliminates the concept of other-than-temporary impairment and requires credit losses related to available-for-sale debt securities to be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. These changes will result in earlier recognition of credit losses. In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments—Credit Losses, which narrowed the scope and changed the effective date for non-public entities for ASU 2016-13. The FASB subsequently issued supplemental guidance within ASU No. 2019-05, Financial Instruments—Credit Losses (Topic 326): Targeted Transition Relief (“ASU 2019-05”). ASU 2019-05 provides an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. This guidance is effective for the Company for annual periods beginning after December 15, 2022, including interim periods within that fiscal year. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-13 will have on its consolidated financial statements. In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides clarification and reduces diversity in accounting for modifications or exchanges of freestanding equity-classified written call options (such as warrants) that remain equity classified after modification or exchange. This guidance is effective for annual periods beginning after December 15, 2021, including interim periods within that fiscal year. Companies should apply the new standard prospectively to modifications or exchanges occurring after the effective date of the new standard. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2021-04 will have on its consolidated financial statements.
Strategic Collaboration Agreement with AstraZeneca UK Limited On October 30, 2020, the Company and AstraZeneca entered into the AstraZeneca Agreement pursuant to which the Company and AstraZeneca will work to jointly discover, develop and commercialize next-generation alpha-emitting radiopharmaceuticals and combination therapies for the treatment of cancer globally by leveraging the Company’s Targeted Alpha Therapies, or TATs, platform and expertise in radiopharmaceuticals with AstraZeneca’s leading portfolio of antibodies and cancer therapeutics, including DNA damage response inhibitors (“DDRis”). Each party retains full ownership over its existing assets. The AstraZeneca Agreement consists of 2 distinct collaboration programs: novel TATs and combination therapies. Under the AstraZeneca Agreement, the parties may develop up to three novel TATs (the “Novel TATs Collaboration”). The parties will also evaluate up to five potential combination strategies involving the Company’s existing assets, including the Company’s lead candidate FPI-1434, in combination with certain of AstraZeneca’s existing therapeutics for the treatment of various cancers (the “Combination Therapies Collaboration”). The AstraZeneca Agreement expires on a TAT-by-TAT and combination-by-combination basis upon the later of the expiration of development and exclusivity obligations relating to such TAT or combination or, if such TAT or combination is commercialized as a product under the AstraZeneca Agreement, the expiration of the commercial life of such product. The Company and AstraZeneca can each terminate the AstraZeneca Agreement for the other party’s uncured material breach following the applicable notice period. Each of the Company and AstraZeneca may also terminate the AstraZeneca Agreement with respect to any TAT or combination product if such party determines that the continued development of such TAT or combination product is not commercially viable, or for a material safety issue with respect to such TAT or combination product. Novel TATs Collaboration As part of the Novel TATs Collaboration, the parties may develop up to three novel TATs. The Company and AstraZeneca will share development costs equally (with each party responsible for the cost of its own supply in connection with such development). Either party has the right to opt out of the co-development and co-commercialization arrangement at pre-determined timepoints and obtain exclusive rights to a novel TAT in exchange for milestone payments to the other party of up to $145.0 million per novel TAT and a low or high single-digit royalties on future sales (depending on the opt out time point). If neither party opts out, and unless otherwise agreed by the parties, AstraZeneca will lead worldwide commercialization activities for the novel TATs, subject to The Novel TATs Collaboration is within the scope of ASC 808 as the Company and AstraZeneca are both active participants in the research and development The Company records its portion of the research and development expenses as the related expenses are incurred. All payments received or amounts due from AstraZeneca for reimbursement of shared costs are accounted for as an offset to research and development expense. For the three and nine months ended September 30, 2021, the Company incurred $1.6 million and $2.0 million, respectively, in gross research and development expenses relating to the Novel TATs Collaboration which was offset by $0.8 million and $1.0 million, respectively, in amounts due from AstraZeneca for reimbursement of shared costs. As of September 30, 2021, the Company recorded $0.9 million due from AstraZeneca for reimbursement of shared costs in prepaid expenses and other current assets. Combination Therapies Collaboration As part of the Combination Therapies Collaboration, the parties will evaluate up to five potential combination strategies involving the Company’s existing assets, including the Company’s lead candidate FPI-1434, in combination with certain of AstraZeneca’s existing therapeutics for the treatment of various cancers. The Company received an upfront payment of $5.0 million from AstraZeneca in December 2020 associated with the Combination Therapies Collaboration. AstraZeneca will fully fund all research and development activities for the combination strategies, until such point as the Company may opt-in to the clinical development activities. The Company also has the right to opt-out of clinical development activities relating to these combination therapies. In such instance, the Company will be responsible for repaying its share of the development costs via a royalty on the additional combination sales only if its drug is approved on the basis of clinical development solely conducted by AstraZeneca, in which case the royalty payments shall also include a variable risk premium based on the number of the Company’s product candidates to have received regulatory approval at that time. Each party will have the sole right, on a country-by-country basis, to commercialize its respective contributed compound as a component of any combination therapy for which such party’s contributed compound may be commercialized under a separate marketing authorization from the other party’s contributed compound to such combination therapy. The parties will negotiate in good faith on a combination therapy-by-combination therapy basis the terms and conditions to co-commercialize any combination therapy that is to be commercialized under a single marketing authorization. During the period of time commencing with the inclusion of an available molecular target in the selection pool for development as a combination therapy and ending upon the end of the nomination period or earlier removal of such combination target from such pool, the Company will not undertake any preclinical or clinical studies combining the Company’s TAT platform with any compound modulating the activity of such combination target. Following selection of a target under the AstraZeneca Agreement and payment of an exclusivity fee by AstraZeneca, and provided that AstraZeneca enrolls its first patient in a clinical trial as further defined in the AstraZeneca Agreement within a pre-defined period of time of such selection, the Company will not undertake any preclinical or clinical studies combining the Company’s TAT platform with compounds modulating the same combination target for the duration of the evaluation period for such combination target, as further defined in the AstraZeneca Agreement. Within a certain time period following initiation of the evaluation period with respect to a combination target, AstraZeneca has the exclusive right to undertake, alone or in collaboration with the Company, all further clinical or preclinical combination studies with respect to a combination target by paying certain exclusivity fees. The Company is eligible to receive future payments of up to $40.0 million, including those for the achievement of certain clinical milestones and exclusivity fees. The Company determined the research and development activities associated with the Combination Therapies Collaboration are a key component of its central operations and AstraZeneca has contracted with the Company to obtain goods and services which are an output of the Company’s ordinary activities in exchange for consideration. Further, the Company does not share the risks and rewards of the underlying research activities making AstraZeneca a customer for the Combination Therapies Collaboration which falls within the scope of ASC 606. To determine the appropriate amount of revenue to be recognized under ASC 606, the Company performed the following steps: (i) identify the promised goods or services in the contract, (ii) determine whether the promised goods or services are performance obligations, including whether they are distinct in the context of the contract, (iii) measure the transaction price, including the constraint on variable consideration, (iv) allocate the transaction price to the performance obligations and (v) recognize revenue when (or as) the Company satisfies each Under ASC 606 the Company accounts for (i) the license it conveyed to AstraZeneca with respect to certain intellectual property and (ii) the obligations to perform research and development services as part of the Combination Therapies Collaboration as a single performance obligation under the AstraZeneca Agreement. The Company concluded AstraZeneca’s right to purchase exclusive options to obtain certain development, manufacturing and commercialization rights represent customer options that are not performance obligations as they do not contain any discounts or other rights that would be considered a material right in the arrangement. Such options will be accounted for upon AstraZeneca’s election. The Company determined the transaction price under ASC 606 at the inception of the AstraZeneca Agreement to be the $5.0 million upfront payment. The cost reimbursement payments for all costs incurred by Under ASC 606, the Company recognizes revenue using the cost-to-cost method, which it believes best depicts the transfer of control to the customer. Under the cost-to-cost method, the extent of progress towards completion is measured based on the ratio of actual costs incurred to the total estimated costs expected upon satisfying the identified performance obligation. Under this method, revenue is recorded as a percentage of the estimated transaction price based on the extent of progress towards completion. Under ASC 606, the estimated transaction price includes variable consideration that is not constrained. The Company does not include variable consideration to the extent that it is probable that a significant reversal in For the clinical milestone payments, the Company utilizes the most likely amount method to determine the amounts recognized and timing of The Company will re-evaluate the transaction price at the end of each reporting period and as uncertain events are resolved, or other changes in circumstances occur, adjust its estimate of the transaction price if necessary. As of December 31, 2020,
The following table
During the three and nine months ended September 30, 2021 and 2020, the Company recognized the following revenue (in thousands):
The current portion of deferred revenue and deferred revenue, net of current portion, are $2.3 million and $2.2 million as of September 30, 2021, respectively, which reflects the Company’s estimate of the revenue it expects to recognize within the next 12 months and beyond 12 months, respectively. The Company expects to recognize the revenue associated with the AstraZeneca Agreement in subsequent periods through the year ending December 31, 2024.
The following tables present information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis and indicates the level of the fair value hierarchy used to determine such fair values (in thousands):
Investments consisted of
As of December 31, 2020, the amortized cost and estimated fair value of investments, by contractual maturity, was as follows (in thousands):
Prepaid expenses and other current assets consisted of the following (in thousands):
Accrued expenses consisted of the following (in thousands):
Common Shares On June
Upon the closing of the IPO, all outstanding voting and non-voting common shares were converted to On July 2, 2021, the Sales Agreement, through an “at-the-market” equity offering program under which
Convertible Preferred Shares Prior to the IPO, the Company issued Class A convertible preferred shares (the “Class A preferred shares”) and Class B convertible preferred shares (the “Class B preferred shares” and, together with the Class A preferred shares, the “Preferred Shares”). As of In March 2019, the Company completed its first closing of its Class B preferred shares and issued and sold 30,207,129 Class B preferred shares at a price of $1.5154 per share for gross proceeds of $45.8 million In January 2020, the
The rights and preferences of the Class B preferred shares sold under the Additional Class B Closing were the same as the rights and preferences of the Class B preferred shares issued and sold by the Company in March 2019. Accordingly, under the terms of the Amended Class B Subscription Agreement, upon the earlier occurrence of a specified development or specified regulatory milestone, CPP was obligated to purchase an additional 6,598,917 Class B preferred shares at a price of $1.5154 per share. The Company concluded that these rights or obligations of CPP to participate in the Milestone Financing of Class B preferred shares met the definition of a freestanding financial instrument that was required to be recorded as a liability at fair value as (i) the instruments are legally detachable and separately exercisable from the Class B preferred shares and (ii) the rights will require the Company to transfer assets upon future closings of the Class B preferred shares. Upon the Additional Class B Closing in January 2020, the Company recorded an additional liability for the preferred share tranche right of $1.1 million and a corresponding reduction to the carrying value of the Class B preferred shares. In May 2020, the Company achieved the specified regulatory milestone associated with the Class B preferred share tranche right, which triggered the requirement of the Class B shareholders to participate in the Milestone Financing. Upon closing of the Milestone Financing on June 2, 2020, the Company issued and The Class B preferred share tranche right liability was settled in connection with the achievement of the regulatory milestone associated with the Class B preferred share tranche right. Specifically, the fair value of the Class B preferred share tranche right liability was remeasured for the last time as of the Milestone Financing closing date, resulting in the Company recognizing a loss in the consolidated statement of operations and comprehensive loss for the year ended December 31, 2020 of $32.7 million for the change in the fair value of the tranche right liability between December 31, 2019 and June 2, 2020. Immediately thereafter, the balance of the Class B preferred share tranche right liability of $39.6 million was reclassified to Class B convertible preferred shares in an amount of $35.3 million and to non-controlling interest in Fusion Pharmaceuticals (Ireland) Limited
Upon the closing of Preferred Exchangeable Shares and In connection with each issuance and sale of its Class A preferred shares and Class B preferred shares, the In March 2019, in connection with the first closing of Class B preferred shares, as described above, the Company’s Irish subsidiary issued and sold 4,437,189 Class B preferred exchangeable shares at a price of $1.5154 per share and the Company issued and sold 4,437,189 Class B special voting shares at a price of $0.000001 per share for aggregate gross proceeds of $6.7 million (the “2019 Preferred Exchangeable Share Financing”). In May 2020, the Company achieved the specified regulatory milestone associated Upon the closing of the IPO, the Company converted all of the outstanding Class A and Class B preferred exchangeable shares and Special Voting Shares into Class A and Class B preferred shares on a one-for-one basis then converted the Class A and Class B preferred shares into common shares at a conversion ratio of 5.339 Preferred Share to one common share.
In January 2020, in conjunction with the Company’s execution of the Amended Class B Subscription Agreement, the Company issued to the existing holders of Class B convertible preferred shares (excluding the investor in the Additional Class B Closing in January 2020) warrants to purchase 3,126,391 Class B convertible preferred shares, at an exercise price of $1.5154 per share, and Fusion Pharmaceuticals (Ireland) Limited issued to the existing holders of Class B preferred exchangeable shares warrants to purchase 873,609 Class B preferred exchangeable shares, at an exercise price of $1.5154 per share (collectively the “Preferred Share Warrants”). If the warrants to purchase Class B preferred exchangeable shares are exercised, at that same time, the shareholder is obligated to purchase from the Company an equal number of Class B special voting shares at a price of $0.000001 per share. The Preferred Share Warrants were issued for no consideration, and the specified exercise prices of each warrant are subject to adjustment for share dividends, share splits, combination or other similar recapitalization transactions as provided under the terms of the warrants. The Preferred Share Warrants were immediately exercisable and expire two years from the date of issuance or upon the earlier occurrence of specified qualifying events, which include the consummation of a Deemed Liquidation Event and the closing of a qualifying share sale (as defined in the articles of the corporation, as amended and restated). Upon the closing of a qualified public offering, on specified terms, all outstanding warrants to purchase Class B convertible preferred shares of the Company and warrants to purchase Class B preferred exchangeable shares of Fusion Pharmaceutics (Ireland) Limited will become warrants to purchase common shares of the Company. Upon issuance of the Preferred Share Warrants in January 2020, the Company recorded on its consolidated balance sheet a preferred share warrant liability of $1.4 million, equal to the issuance-date fair value of the Preferred Share Warrants, as well as a corresponding decrease of $1.3 million to additional paid-in capital, reducing that to zero, and an increase of $0.1 million to accumulated deficit for the The issuance of the Preferred Share Warrants was treated as a deemed dividend to existing preferred shareholders for purposes of the Company’s calculation of net loss per share attributable to common shareholders, and, as such, the aggregate value of the dividend to existing preferred shareholders was deducted from the Company’s net loss when qualify for equity classification. For the nine months ended September 30, 2020, the Company recognized a loss of On August 17, 2020, a holder of common share warrants exercised 97,381 common share warrants through a cashless exercise and the Company issued 38,340 common shares with the
On June 18, 2020, the As of September 30, 2021, 2,575,208 shares, remained available for future grant under the 2020 Plan. Shares that are 2017 Equity Incentive Plan The Company’s 2017 Equity Incentive Plan (the “2017 Plan”) provides for the Company to
As of September 30, 2021 and December 31, 2020, 0 shares remained available for future grant under the 2017 Plan. Shares that are expired, forfeited, canceled or otherwise terminated without having been fully exercised will be available for future grant under the 2020 Plan. 2020 Employee Share Purchase Plan On June 18, 2020, the Company’s board of directors adopted the 2020 Employee Share Purchase Plan (the “ESPP”), which became effective on Stock Option Valuation The fair value model. The based on the historical volatility of a publicly traded set of peer companies and
The following table presents, on a weighted-average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted:
Stock Options The
The aggregate intrinsic value of Share-based Compensation Share-based compensation expense was classified in the condensed consolidated statements of operations and comprehensive loss as follows (in thousands):
As of September 30, 2021, total unrecognized share-based compensation expense related to unvested share-based awards was $25.4 million, which is expected to be recognized over a weighted-average period of 2.8 years. Additionally, as of September 30, 2021, the Company has unrecognized share-based compensation expense related to unvested stock options with performance-based vesting conditions for which performance has not been deemed probable of $1.0 million.
License Agreement with the Centre for Probe Development and Commercialization Inc. In November 2015, the Company entered into a license agreement with the Centre for Probe Development and Commercialization Inc. (“CPDC”), a related party (see Note 15) (the “CPDC Agreement”). Under the agreement, the Company was granted an exclusive, sublicensable, nontransferable, worldwide license under CPDC’s patent rights related to CPDC’s radiopharmaceutical linker technology to develop, market, make, use and sell certain products for all disease indications and uses in humans, whether diagnostic or therapeutic. The Company has the The Company has no obligations under any of the agreements with CPDC to make any milestone payments or to pay any royalties or annual maintenance fees to CPDC. During the three and nine months ended September 30, 2021 and 2020, the Company did 0t make any payments to CPDC or recognize any research and development expenses under the license agreements with CPDC. License Agreement with ImmunoGen, Inc. In December 2016, the Company entered into a license agreement with ImmunoGen, Inc. (“ImmunoGen”) (the “ImmunoGen Agreement”). Under the agreement, the Company was granted an exclusive, sublicensable, worldwide license under ImmunoGen’s patent rights to use, develop, manufacture and commercialize any radiopharmaceutical conjugate that includes a certain compound and any resulting commercialized products. The Company has the right to grant sublicenses of its rights. Under the ImmunoGen Agreement, the Company paid an upfront fee of $0.2 million to ImmunoGen. In addition, the Company is obligated to make aggregate milestone payments to ImmunoGen of up to $15.0 million upon the achievement of specified development and regulatory milestones and of up to $35.0 million upon the achievement of specified sales milestones. The Company is also obligated to pay tiered royalties of a low to mid single-digit percentage based on annual net sales by the Company and any of its affiliates and sublicensees. Royalties will be paid by the Company on a country-by-country basis beginning upon the first commercial sale in such Prior to regulatory approval of a licensed product in any country, the Company has the right to terminate the agreement upon 90 days’ prior written notice to ImmunoGen. Upon receipt of its first regulatory approval of a licensed product in any country, the Company has the right to terminate the agreement upon 180 days’ prior written notice to ImmunoGen. If the Company or ImmunoGen fails to comply with During the three and nine months ended September 30, 2021 and 2020, the Company did 0t make any payments to Asset Acquisition from and License Agreement with MediaPharma S.r.l. In May 2019, the Company and MediaPharma S.r.l. (“MediaPharma”) entered into an asset acquisition and license agreement. Under the agreement, the Company purchased all right, title and interest to In connection with which all issued patents under the agreement have expired or (iii) the date upon which a product highly similar in composition to the licensed product and having no The Company is not entitled to any payments from MediaPharma for use of the During the three and nine months ended September 30, 2021 and 2020, the Company did 0t make any payments to MediaPharma or recognize any research and development expenses under the MediaPharma Agreement. Asset Acquisition from Rainier Therapeutics, Inc. and License Agreement with Genentech, Inc. On March 10, 2020 (the “Closing”), the Company and Rainier Therapeutics, Inc. (“Rainier”) entered into an asset acquisition agreement (the “Rainier Agreement”). Under the agreement, the Company purchased all rights, title and interest to Rainier’s, and any of its affiliates’ and sublicensees’, patents and other tangible and intangible assets to perform research and to develop, manufacture and commercialize a specified compound of antibody molecules that bind to targets for the prevention, treatment and diagnosis of all diseases and conditions only using such compound as an antibody drug conjugate. The Company concluded to account for this purchase as an asset acquisition as substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset, the license rights. In connection with the asset acquisition, the Company paid an upfront fee of $1.0 million to Rainier and recognized this amount as research and development expense in the Unless the Rainier Agreement was terminated pursuant to its terms, which termination initially could not have occurred later than eight months following the Closing (the “Outside Date”), the Company was obligated to pay Rainier an additional amount of $3.5 million and to issue 313,359 of the Company’s common shares on the Outside Date. If the Rainier Agreement was not terminated by the Outside Date, the Company is also obligated to make aggregate milestone payments to Rainier of up to $22.5 million and to issue up to 156,679 of the Company’s common shares upon the achievement of specified development and regulatory milestones, of which a In the event the Company enters into a transaction with a non-affiliated party relating to the license or sale of substantially all the Company’s rights to develop the specified compound of antibody molecules, the Company will be obligated to pay Rainier a specified percentage of the revenue from such transaction, in an amount ranging from 10% to 30%, based on how long after the Closing the transaction takes place. The Rainier Agreement could have been terminated at any time prior to the Outside Date upon 30 days’ notice by the Company to Rainier or upon the mutual written consent of both parties. On October 8, 2020, the Company and Rainier entered into a first amendment to the Rainier Agreement (the “First Amended Rainier Agreement”) to extend certain terms of the Rainier Agreement. Specifically, the Outside Date was amended such that termination may not occur later than eleven months following the Closing, or February 10, 2021 (the “Revised Outside Date”). On February 8, 2021, the Company and Rainier entered into a second amendment to the First Amended Rainier Agreement, as amended (the “Second Amended Rainier Agreement”). Pursuant to the Second Amended Rainier Agreement, the Outside Date was further amended such that termination may not occur later than July 1, 2021, and such amendment was made in consideration for early payment of the additional $3.5 million owed to Rainier which the Company paid and recorded as research and development expense during the three months ended March 31, 2021. On May 26, 2021, the Company notified Rainier of its intent to continue development of the asset and issued 313,359 of its common shares to Rainier on July 1, 2021. During the three months ended September 30, 2021, the Company did 0t recognize any research and development expense associated with the Second Amended Rainier Agreement. During the nine months ended September 30, 2021, the Company recognized $6.1 million of research and development expense associated with the payment of $3.5 million and the issuance of 313,359 of its common shares as noted above. During the nine months ended September 30, 2020, the Company paid an upfront fee of $1.0 million to Rainier and recognized this as an expense as noted above. In connection with the Rainier Agreement, in March 2020, the Company was assigned all of Rainier’s rights and obligations under an exclusive license agreement between BioClin Therapeutics, Inc. and Genentech, Inc. (“Genentech”) (the “Genentech License Agreement”). Pursuant to the Genentech License Agreement, the Company has an exclusive, worldwide, sublicensable license to make, use, research, develop, sell and import certain intellectual property and technology of Genentech relating to a specified antibody and any mutant antibody thereof (the “Licensed Antibodies”), including any products that contain a Licensed Antibody as an active ingredient (the “Products”), for all human uses. Pursuant to the Genentech License Agreement, the Company is obligated to use commercially reasonable efforts to develop and commercialize at least one Product and the Company is solely responsible for the costs associated with the development, manufacturing, regulatory approval and commercialization of any Products. The manufacture of the antibody by any third-party contract manufacturing organization must be approved in advance by Genentech. Additionally, Genentech retains the right to use the Licensed Antibodies solely to research and develop molecules other than the Licensed Antibodies. Under Genentech License Agreement, the Company is obligated to make aggregate milestone payments to Genentech of up to $44.0 million upon the achievement of specified sales milestones. The Company is also obligated to pay to Genentech tiered royalties of a mid to high single-digit percentage based on annual net sales by the Company, and any of its affiliates and sublicensees, for the specified compound of antibody molecules and of a mid to high single-digit percentage based on annual net sales by the Company, and any of its affiliates and sublicensees, for any other compound containing mutant antibody molecules of the specified compound. In addition, the Company is obligated to pay to Genentech royalties of a low single-digit percentage based on quarterly net sales in any country in which the specified compound is not covered by a valid patent claim, and those sales will not be subject to the
The Company has the right to terminate the Genentech License Agreement upon written notice to Genentech if the Company determines in its sole discretion that development or commercialization of Products is not economically or scientifically feasible or appropriate. In addition, if the Company or Genentech fails to comply with any of its obligations or otherwise breaches the agreement, the other party may terminate the agreement. The Genentech License Agreement expires on the date on which During the three and nine months ended September 30, 2021 and 2020, the Company did 0t make any payments to Genentech or recognize any research and development expenses under the Genentech License Agreement. Master Services and License Agreement with Yumab GmbH On May 15, 2020, the Company entered into a master services and license agreement (the “Yumab Agreement”) with Yumab GmbH (“Yumab”). Under the agreement, Yumab will assist the Company in During the three and nine months ended September 30, 2021, the Company did 0t make any payments to Yumab or recognize any research and development expenses under the Yumab Agreement. During the three and nine months ended September 30, 2020, the Company recognized $0.2 million as research and development expense in the consolidated statements of operations and comprehensive loss under the Yumab Agreement. Collaboration Agreement and Supply Agreement with TRIUMF Innovations, Inc. On December 10, 2020, the Company entered into a Collaboration Agreement and Supply Agreement with TRIUMF Innovations Inc. and TRIUMF JV (collectively, “the TRIUMF entities”) for the development, production and supply of actinium-225 to the Company. Under the Collaboration Agreementas executed in December 2020, the Company is obligated to pay the TRIUMF entities an aggregate of $5.0 million CAD upon the achievement of certain milestones. The Collaboration Agreement contemplated that the parties would enter into an amendment thereto to expand the scope of the project and provide for additional milestone payments. As of September 30, 2021, the TRIUMF entities had achieved certain milestones under the Collaboration Agreement totaling $3.0 million CAD (equivalent to $2.3 million at the time of payment) which was paid during the As previously contemplated, on August 12, 2021, the parties amended the Collaboration Agreement in order to expand the scope of the project and the Company agreed to make an additional financial investment of up to $15.0 million CAD in connection with development of new process technology for the manufacture of actinium-225 upon the achievement of certain milestones under an amendment to the Collaboration Agreement (the “Amended Collaboration Agreement”). In connection with the Amended Collaboration Agreement, the parties have formed a company (“NewCo”) to hold certain intellectual property derived from the collaboration. NewCo is jointly owned and managed by the Company and the TRIUMF entities and its purpose is to manufacture actinium-225 for the research, clinical and commercial needs of the Company, and in certain circumstances, other third parties. The supply of actinium-225 by NewCo to the Company shall be done under a commercial supply agreement, to be negotiated by NewCo and the Company. The Company is expected to purchase at least 50% of its annual actinium-225 requirements from NewCo, unless NewCo is unable to supply such necessary quantities to the Company, in which case the Company may use other actinium-225 suppliers to meet its commercial needs. As of September 30, 2021, the TRIUMF entities had achieved certain milestones under the Amended Collaboration Agreement totaling $5.0 million CAD (equivalent to $3.9 million at the time of payment) which was paid during the three and nine months ended September 30, 2021 and is being amortized as research and development expense over the period of performance by the TRIUMF entities. During the three and nine months ended September 30, 2021, the Company did 0t recognize any research and development expense under the Amended Collaboration Agreement. The Company recorded $2.2 million and $2.7 million of milestone payments in prepaid expenses and other current assets and other non-current assets, respectively, as of September 30, 2021 based on its estimate of costs to be incurred over the 12 months following the balance sheet date for both the Collaboration Agreement and the Amended Collaboration Agreement. Asset Acquisition from Ipsen Pharma SAS On March 1, 2021, the Company and Ipsen Pharma SAS (“Ipsen”) announced that the parties had entered into an asset purchase agreement (the “Ipsen Agreement”) whereby the Company agreed to acquire Ipsen’s intellectual property and assets related to IPN-1087, a small molecule targeting neurotensin receptor 1 (“NTSR1”), a protein expressed on multiple solid tumor types. The Company intends to combine its expertise and proprietary TAT platform with IPN-1087 to create an alpha-emitting radiopharmaceutical targeting solid tumors expressing NTSR1. The Company and Ipsen submitted a pre-merger notification and report form with the United States Federal Trade Commission and the Antitrust Division of the United States Department of Justice in accordance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). The acquisition closed after completion of this antitrust review on April 1, 2021. The Company concluded to account for this purchase as an asset acquisition as substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset, the license rights. Upon closing of the asset acquisition, the Company paid €0.6 million ($0.8 million at the date
The Ipsen Agreement includes a Agreement with Merck & Co. On May 5, 2021, the Company entered into an agreement with two subsidiaries of Merck & Co. (“Merck”). Pursuant to the agreement, Merck will provide to the Company, at no cost, its anti-PD-1 (programmed death receptor-1) therapy, KEYTRUDA® (pembrolizumab) to evaluate in
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