fprx-10q_20190331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 2019

or

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

For the transition period from                      to                      

Commission File Number: 001-36070

 

Five Prime Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

26-0038620

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

111 Oyster Point Boulevard

South San Francisco, California 94080

(415) 365-5600

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

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

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

  

  

 

 

 

 

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

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

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

 

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, par value $0.001 per share

FPRX

The Nasdaq Stock Market LLC

As of May 2, 2019, the number of outstanding shares of the registrant’s common stock was 36,062,578.

 

 


 

TABLE OF CONTENTS

 

PART I.

  

FINANCIAL INFORMATION

  

4

 

  

 

Item 1.

  

Unaudited Financial Statements

  

4

 

  

 

  

 

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

  

4

 

  

 

  

 

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

  

5

 

  

 

  

 

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

  

6

 

  

 

  

 

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

  

7

 

 

 

 

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

 

8

 

  

 

  

 

Notes to Financial Statements

  

9

 

  

Item 2.

  

 

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

  

19

 

  

Item 3.

  

 

Quantitative and Qualitative Disclosures About Market Risk

  

28

 

  

Item 4.

  

 

Controls and Procedures

  

28

PART II.

  

 

OTHER INFORMATION

  

29

 

  

Item 1.

  

 

Legal Proceedings

  

29

 

  

Item 1A.

  

 

Risk Factors

  

29

 

  

Item 6.

  

 

Exhibits

  

59

 

Signatures

  

60

In this report, unless otherwise stated or the context otherwise indicates, references to “Five Prime,” “the company,” “we,” “us,” “our” and similar references refer to Five Prime Therapeutics, Inc. The Five Prime logo and RIPPS® are our registered trademarks. This report also contains registered marks, trademarks and trade names of other companies. All other trademarks, registered marks and trade names appearing in this report are the property of their respective holders.

 

 

 

2


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This Quarterly Report on Form 10-Q, or this report, contains forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect,” or similar expressions, or the negative or plural of these words or expressions. These forward-looking statements include statements concerning the following:

 

our estimates regarding our expenses, revenues, anticipated capital requirements and our needs for additional financing;

 

our receipt of future milestone payments or royalties, and the timing of such payments;

 

our and our partners’ ability to timely advance drug candidates into and through clinical data readouts and successful completion of clinical trials;

 

the timing, progress and results of preclinical studies and research and development programs;

 

our expectations regarding the potential safety, efficacy or clinical utility of our product candidates;

 

the implementation, timing and likelihood of success of our plans to develop companion diagnostics for our product candidates;

 

our ability to establish and maintain collaborations and necessary licenses;

 

the implementation of our business model and strategic plans for our business, product candidates and technology;

 

the scope of protection we establish and maintain for intellectual property rights covering our product candidates and technology;

 

the size of patient populations targeted by products we or our partners develop and market adoption of such products by physicians and patients;

 

the extent of protein overexpression and gene amplification in certain patient populations;

 

the timing or likelihood of regulatory filings and approvals for products we or our partners develop;

 

the ability to negotiate adequate reimbursement and pricing for our drug candidates by third parties and government authorities;

 

developments relating to our competitors and our industry; and

 

our expectations regarding licensing, acquisitions and strategic operations.

These forward-looking statements are only current predictions and are subject to known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by such statements. We discuss many of these risks in greater detail under the heading “Risk Factors” and elsewhere in this report. You should not rely upon forward-looking statements as predictions of future events.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we are under no duty to update or revise any of the forward-looking statements in this report, whether as a result of new information, future events or otherwise, after the date of this report.

We obtained the industry, market and competitive position data in this report from our own internal estimates and research as well as from industry and general publications and research surveys and studies conducted by third parties. While we believe that the information in each of these publications, surveys and studies is reliable, we have not independently verified market and industry data from third-party sources. While we believe our internal estimates and research are reliable and the market definitions we use are appropriate, such estimates, research and definitions have not been verified by any independent source.

 

 

3


 

PART I. FINANCIAL INFORMATION

 

Item 1. Unaudited Financial Statements

FIVE PRIME THERAPEUTICS, INC.

Balance Sheets

(In thousands, except share and per share amounts)

 

 

March 31,

 

 

December 31,

 

 

2019

 

 

2018

 

 

(Unaudited)

 

 

(Note 1)

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

29,632

 

 

$

43,953

 

Marketable securities

 

207,325

 

 

 

226,185

 

Receivables from collaborative partners

 

3,363

 

 

 

5,096

 

Prepaid and other current assets

 

10,221

 

 

 

13,334

 

Total current assets

 

250,541

 

 

 

288,568

 

Restricted cash

 

1,543

 

 

 

1,543

 

Property and equipment, net

 

28,146

 

 

 

28,718

 

Operating lease, right-of-use assets

 

32,722

 

 

 

 

Other long-term assets

 

2,812

 

 

 

2,705

 

Total assets

$

315,764

 

 

$

321,534

 

 

 

 

 

 

 

 

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

4,436

 

 

$

1,972

 

Accrued personnel-related expenses

 

3,465

 

 

 

7,383

 

Other accrued liabilities

 

12,473

 

 

 

15,348

 

Operating lease obligations, current portion

 

3,698

 

 

 

 

Deferred revenue, current portion

 

 

 

 

1,428

 

Deferred rent, current portion

 

 

 

 

1,356

 

Total current liabilities

 

24,072

 

 

 

27,487

 

Deferred revenue, long-term portion

 

8,764

 

 

 

10,465

 

Operating lease obligations, long-term portion

 

48,602

 

 

 

 

Deferred rent, long-term portion

 

 

 

 

18,443

 

Stockholders' equity:

 

 

 

 

 

 

 

Common stock, $0.001 par value; 100,000,000 shares authorized, 35,918,291

   issued and 34,838,684 outstanding at March 31, 2019; 35,625,751 issued and

  34,745,721 outstanding at December 31, 2018.

 

34

 

 

 

34

 

Preferred stock, $0.001 par value; 10,000,000 shares authorized; no shares issued and

   outstanding

 

 

 

 

 

Additional paid-in capital

 

564,316

 

 

 

559,892

 

Accumulated other comprehensive income (loss)

 

42

 

 

 

(106

)

Accumulated deficit

 

(330,066

)

 

 

(294,681

)

Total stockholders' equity

 

234,326

 

 

 

265,139

 

Total liabilities and stockholders' equity

$

315,764

 

 

$

321,534

 

 

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

 

 

 

4


 

FIVE PRIME THERAPEUTICS, INC.

Statements of Operations

(In thousands, except per share amounts)

 (Unaudited)

 

 

Three Months Ended

 

 

March 31,

 

 

2019

 

 

2018

 

Collaboration revenue

$

5,347

 

 

$

32,486

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

31,753

 

 

 

43,552

 

General and administrative

 

10,510

 

 

 

10,478

 

Total operating expenses

 

42,263

 

 

 

54,030

 

Loss from operations

 

(36,916

)

 

 

(21,544

)

Interest income

 

1,533

 

 

 

1,159

 

Other expense, net

 

(2

)

 

 

(5

)

Loss before income tax

 

(35,385

)

 

 

(20,390

)

Income tax provision

 

 

 

 

 

Net loss

$

(35,385

)

 

$

(20,390

)

Basic and diluted net loss per common share

$

(1.02

)

 

$

(0.63

)

Weighted-average shares used to compute basic and diluted net loss per common share

 

34,794

 

 

 

32,314

 

 

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

 

 

 

5


 

FIVE PRIME THERAPEUTICS, INC.

Statements of Comprehensive Loss

(In thousands)

 (Unaudited)

 

 

Three Months Ended

 

 

March 31,

 

 

2019

 

 

2018

 

Net loss

$

(35,385

)

 

$

(20,390

)

Other comprehensive gain (loss):

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities

 

148

 

 

 

(110

)

Comprehensive loss

$

(35,237

)

 

$

(20,500

)

 

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

 

 

 

6


 

FIVE PRIME THERAPEUTICS, INC.

Statements of Stockholders’ Equity

(In thousands, except share amounts)

 (Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Retained

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

Earnings

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

(Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit)

 

 

Equity

 

Balances at December 31, 2017

 

 

28,178,639

 

 

$

28

 

 

$

421,257

 

 

$

(476

)

 

$

(155,607

)

 

$

265,202

 

Issuance of common stock upon follow-on public offering, net

   of issuance costs

 

 

5,897,435

 

 

 

6

 

 

 

114,994

 

 

 

 

 

 

 

 

 

115,000

 

Issuance costs related to the follow-on public offering

 

 

 

 

 

 

 

 

(7,387

)

 

 

 

 

 

 

 

 

(7,387

)

Issuance of common stock under equity incentive plans

 

 

311,179

 

 

 

 

 

 

1,704

 

 

 

 

 

 

 

 

 

1,704

 

Repurchase of shares to satisfy tax withholding obligations

 

 

(52,608

)

 

 

 

 

 

(997

)

 

 

 

 

 

 

 

 

(997

)

Effect of adoption of ASU 2014-09

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,374

 

 

 

1,374

 

Stock-based compensation expense

 

 

 

 

 

 

 

 

7,820

 

 

 

 

 

 

 

 

 

7,820

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(110

)

 

 

 

 

 

(110

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(20,390

)

 

 

(20,390

)

Balances at March 31, 2018

 

 

34,334,645

 

 

 

34

 

 

 

537,391

 

 

 

(586

)

 

 

(174,623

)

 

 

362,216

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

Retained

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

Earnings

 

 

Total

 

 

 

Common Stock

 

 

Paid-In

 

 

Comprehensive

 

 

(Accumulated

 

 

Stockholders'

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit)

 

 

Equity

 

Balances at December 31, 2018

 

 

34,745,721

 

 

$

34

 

 

$

559,892

 

 

$

(106

)

 

$

(294,681

)

 

$

265,139

 

Issuance of common stock under equity incentive plans

 

 

150,666

 

 

 

 

 

 

222

 

 

 

 

 

 

 

 

 

222

 

Repurchase of shares to satisfy tax withholding obligations

 

 

(57,703

)

 

 

 

 

 

(670

)

 

 

 

 

 

 

 

 

(670

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

4,872

 

 

 

 

 

 

 

 

 

4,872

 

Other comprehensive gain

 

 

 

 

 

 

 

 

 

 

 

148

 

 

 

 

 

 

148

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(35,385

)

 

 

(35,385

)

Balances at March 31, 2019

 

 

34,838,684

 

 

 

34

 

 

 

564,316

 

 

 

42

 

 

 

(330,066

)

 

 

234,326

 

 

 

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

 

 

7


 

FIVE PRIME THERAPEUTICS, INC.

Statements of Cash Flows

(In thousands)

 (Unaudited)

 

 

Three Months Ended

 

 

March 31,

 

 

2019

 

 

2018

 

Operating activities

 

 

 

 

 

 

 

Net loss

$

(35,385

)

 

$

(20,390

)

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

 

 

 

 

 

 

 

Depreciation and amortization

 

1,331

 

 

 

1,151

 

Stock-based compensation expense

 

4,872

 

 

 

7,820

 

Amortization of discounts and premiums on marketable securities

 

(778

)

 

 

13

 

Non-cash operating lease expense

 

563

 

 

 

 

Loss on disposal of property and equipment

 

 

 

 

5

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Receivables from collaborative partners

 

1,733

 

 

 

8,864

 

Prepaid, other current assets and other long-term assets

 

2,421

 

 

 

(5,267

)

Accounts payable

 

3,180

 

 

 

(406

)

Accrued personnel-related expenses

 

(3,918

)

 

 

(2,968

)

Deferred revenue

 

(3,129

)

 

 

(2,304

)

Deferred rent

 

 

 

 

625

 

Other accrued liabilities, and other long-term liabilities

 

(3,349

)

 

 

2,235

 

Operating lease liabilities

 

(217

)

 

 

 

Net cash used in operating activities

 

(32,676

)

 

 

(10,622

)

Investing activities

 

 

 

 

 

 

 

Purchases of marketable securities

 

(59,714

)

 

 

(153,957

)

Maturities of marketable securities

 

79,500

 

 

 

63,250

 

Purchases of property and equipment

 

(983

)

 

 

(840

)

Net cash provided by (used in) investing activities

 

18,803

 

 

 

(91,547

)

Financing activities

 

 

 

 

 

 

 

Proceeds from public offering of common stock, net of issuance costs

 

 

 

 

107,613

 

Proceeds from issuance of common stock under equity incentive plans

 

222

 

 

 

1,704

 

Repurchase of shares to satisfy tax withholding obligations

 

(670

)

 

 

(997

)

Net cash (used in) provided by financing activities

 

(448

)

 

 

108,320

 

 

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents and restricted cash

 

(14,321

)

 

 

6,151

 

Cash, cash equivalents and restricted cash at beginning of period

 

45,496

 

 

 

61,333

 

Cash, cash equivalents and restricted cash at end of period

$

31,175

 

 

$

67,484

 

 

 

 

 

 

 

 

 

Supplemental disclosure

 

 

 

 

 

 

 

Property and equipment purchases included in accrued liabilities

$

492

 

 

$

531

 

 

 

 

 

 

 

 

 

Supplemental cash flow information

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

$

43,953

 

 

$

59,790

 

Restricted cash at beginning of period

 

1,543

 

 

 

1,543

 

Cash, cash equivalents and restricted cash at beginning of period

$

45,496

 

 

$

61,333

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

$

29,632

 

 

$

65,941

 

Restricted cash at end of period

 

1,543

 

 

 

1,543

 

Cash, cash equivalents and restricted cash at end of period

$

31,175

 

 

$

67,484

 

 

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

 

8


 

FIVE PRIME THERAPEUTICS, INC.

Notes to Financial Statements

March 31, 2019

 

1.

Description of Business

Five Prime Therapeutics, Inc. (we, us, our, or the company) is a clinical-stage biotechnology company focused on discovering and developing innovative protein therapeutics. We were incorporated in December 2001 in Delaware. Our operations are based in South San Francisco, California and we operate in one segment.

Unaudited Interim Financial Information

The accompanying financial information as of March 31, 2019 is unaudited. The financial statements included in this report reflect all adjustments (consisting only of normal recurring adjustments) that our management considers necessary for the fair statement of the results of operations for the interim periods covered and of our financial condition at the date of the interim balance sheet. The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The results for interim periods are not necessarily indicative of the results for the entire year or any other interim period. The accompanying financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018, filed with the U.S. Securities and Exchange Commission, or the SEC, on February 26, 2019.

2.

Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes as of the date of the financial statements. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable. Actual results could differ materially from those estimates.

Restricted Cash

Restricted cash consists of a certificate of deposit held by our bank as collateral for a standby letter of credit in the same notional amount by our landlord to secure our obligations under our corporate office and laboratory facility lease that we entered into in December 2016. We are required to maintain this restricted cash balance, the amount of which is subject to reduction starting on January 1, 2023 if certain conditions are met, for the duration of this lease.

Fair Value of Financial Instruments

We determine the fair value of financial and nonfinancial assets and liabilities using the fair value hierarchy, which describes three levels of inputs that may be used to measure fair value, as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities;

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

We determine the fair value of Level 1 assets using quoted prices in active markets for identical assets. We review trading activity and pricing for Level 2 investments as of each measurement date. Level 2 inputs, which are obtained from various third-party data providers, represent quoted prices for similar assets in active markets and were derived from observable market data, or, if not directly observable, were derived from or corroborated by other observable market data. There were no transfers between Level 1 and Level 2 securities in the periods presented.

In certain cases where there is limited activity or less transparency around inputs to valuation, we classify securities as Level 3 within the valuation hierarchy. We do not have any assets or liabilities measured using Level 3 inputs as of March 31, 2019.

9


 

The following table summarizes our financial instruments that were measured at fair value on a recurring basis by level of input within the fair value hierarchy defined above (in thousands):

 

 

March 31, 2019

 

 

 

 

 

 

Basis of Fair Value

 

 

 

 

 

 

Measurements

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

24,281

 

 

$

24,281

 

 

$

 

 

$

 

U.S. Treasury securities

 

64,858

 

 

 

64,858

 

 

 

 

 

 

 

 

 

Agency bonds

 

84,580

 

 

 

84,580

 

 

 

 

 

 

 

 

 

Corporate bonds

 

14,612

 

 

 

 

 

 

 

14,612

 

 

 

 

 

Commercial paper

 

43,275

 

 

 

 

 

 

 

43,275

 

 

 

 

 

Certificate of deposit

 

1,543

 

 

 

 

 

 

 

1,543

 

 

 

 

 

Total

$

233,149

 

 

$

173,719

 

 

$

59,430

 

 

$

 

 

 

December 31, 2018

 

 

 

 

 

 

Basis of Fair Value

 

 

 

 

 

 

Measurements

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

40,849

 

 

$

40,849

 

 

$

 

 

$

 

U.S. Treasury securities

 

104,140

 

 

 

104,140

 

 

 

 

 

 

 

Agency bonds

 

53,999

 

 

 

53,999

 

 

 

 

 

 

 

Corporate bonds

 

11,893

 

 

 

 

 

 

11,893

 

 

 

 

Commercial paper

 

56,152

 

 

 

 

 

 

56,152

 

 

 

 

Certificate of deposit

 

1,543

 

 

 

 

 

 

1,543

 

 

 

 

Total

$

268,576

 

 

$

198,988

 

 

$

69,588

 

 

$

 

 

Revenue Recognition

Effective January 1, 2018, we adopted Financial Accounting Standards Board, or FASB, Accounting Standard Update, or ASU 2014-09, Revenue from Contracts with Customers (Topic 606), or Topic 606, using the modified retrospective transition method. We applied the standard to contracts that were not completed at the date of initial application. Topic 606 provides a unified model to determine how revenue is recognized. We determine revenue recognition for arrangements within the scope of Topic 606 by performing the following five steps: (i) identify the contract; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, the company satisfies a performance obligation. 

The terms of our collaborative research and development agreements include upfront and license fees, research, development and other funding or reimbursements, milestone and other contingent payments for the achievement of defined collaboration objectives and certain preclinical, clinical, regulatory and sales-based events, as well as royalties on sales of commercialized products. Arrangements that include upfront payments may require deferral of revenue recognition to a future period until we perform obligations under these arrangements. We record research and development funding payable to us as accounts receivable when our right to consideration is unconditional. The event-based milestone and other contingent payments represent variable consideration, and we use the most likely amount method to estimate this variable consideration. Given the high degree of uncertainty around occurrence of these events, we determine the milestone and other contingent amounts to be fully constrained until the uncertainty associated with these payments is resolved. We will recognize revenue from sales-based royalty payments when or as the sales occur. We will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur.

A performance obligation is a promise in a contract to transfer a distinct good or service and is the unit of accounting in Topic 606. A contract’s transaction price is allocated among each distinct performance obligation based on relative standalone selling price and recognized as revenue when, or as, the applicable performance obligation is satisfied. Under Topic 606, we elected to use the practical expedient permitted related to adoption, which does not require us to disclose certain information regarding our remaining performance obligations as of the end of the reporting period prior to the initial date of adoption. Additionally, we elected the practical expedient for certain research and development funding which allows us to recognize revenue in the amount for which we have a right to invoice if our right to consideration is an amount that corresponds directly to the value of our performance completed to date. As a result, we effectively bypass the steps of determining the transaction price and allocating that transaction price to the performance obligation.

10


 

Net Loss Per Share of Common Stock

We compute basic net loss per common share by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders, since the effects of potentially dilutive securities are antidilutive. 

We excluded the following securities from the calculation of basic net loss per share (in thousands):

 

Three Months Ended

 

 

March 31,

 

 

2019

 

 

2018

 

Options to purchase common stock

 

3,868

 

 

 

4,032

 

Restricted stock awards (RSAs)

 

977

 

 

 

829

 

 

 

4,845

 

 

 

4,861

 

 

Accounting Pronouncements Adopted in 2019

In February 2016, FASB issued ASU 2016-02, Leases (Topic 842), or ASU 2016-02, which amends existing guidance to require substantially all leases to be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases.

 

We adopted the standard, effective January 1, 2019, using the updated modified retrospective transition method, in which the new standard is applied as of the date of initial adoption. We recognized and measured agreements executed prior to the date of initial adoption that were considered leases on January 1, 2019. No cumulative effect adjustment of initially applying the standard to the opening balance of retained earnings was made upon adoption. We elected the package of practical expedients permitted under the transition guidance that will retain the lease classification and initial direct costs for any leases that exist prior to adoption of the standard. We have not reassessed whether any contracts entered into prior to adoption are leases. In addition, we elected the accounting policy to not record short-term leases with a lease term at the commencement date of twelve months or less on the balance sheet as permitted by the new standard.

 

Upon adoption, we derecognized $19.8 million in deferred rent and recognized $52.5 million in lease liabilities and $33.3 million in right-of use assets on our balance sheet. The Financial Statements for the three months ended March 31, 2019 are presented under the new standard, while comparative years presented are not adjusted and continue to be reported in accordance with our historical accounting policy.

In August 2018, the SEC adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification. These amendments eliminate, modify, or integrate into other SEC requirements certain disclosure rules. Among the amendments is the requirement to present an analysis of changes in stockholders’ equity in the interim financial statements included in quarterly reports on Form 10-Q. The analysis, which can be presented as a footnote or separate statement, is required for the current and comparative quarter and year-to-date interim periods. The amendments are effective for all filings made on or after November 5, 2018. In light of the anticipated timing of effectiveness of the amendments and expected proximity of effectiveness to the filing date for most filers’ quarterly reports, the SEC’s Division of Corporate Finance issued a Compliance and Disclosure Interpretation related to Exchange Act Forms, or CDI – Question 105.09, that provides transition guidance related to this disclosure requirement. CDI – Question 105.09 states that the SEC would not object if the filer’s first presentation of the changes in shareholders’ equity is included in its quarterly report on Form 10-Q for the quarter that begins after the effective date of the amendments. As such, we adopted these SEC amendments on November 5, 2018 and present the analysis of changes in stockholders’ equity beginning the first quarter of 2019. No adjustment was required as a result of this adoption.

 

Accounting Pronouncements Not Yet Adopted

In November 2018, FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808), or ASU 2018-18, which clarifies when certain transactions between collaborative arrangement participants should be accounted for under Topic 606 and incorporates unit-of-account guidance consistent with Topic 606 to aid in this determination. ASU 2018-18 will become effective January 1, 2020 and will apply to all annual and interim reporting periods thereafter. Early adoption is permitted. ASU 2018-18 should generally be applied retrospectively to the date of initial application of Topic 606. We do not anticipate that the adoption of this standard will have a material effect on our financial statements.

11


 

In August 2018, FASB issued ASU 2018-13, Fair Value Measurement - Disclosure Framework (Topic 820), or ASU 2018-13. The updated guidance improves the disclosure requirements on fair value measurements. The update will become effective for us beginning in the first quarter of 2020. Early adoption is permitted for any removed or modified disclosures. We are currently assessing the timing and impact of adopting the updated provisions.

In June 2016, FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), or ASU 2016-13. ASU 2016-13 requires measurement and recognition of expected credit losses for financial assets. This guidance will become effective for us beginning in the first quarter of 2020 and must be adopted using a modified retrospective approach, with certain exceptions. We are currently assessing the impact of adopting the updated provisions and do not anticipate that the adoption of this standard will have a material effect on our Financial Statements.

In April 2015, FASB issued ASU 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Topic 350), or ASU 2018-15. ASU 2018-15 requires a customer in a cloud computing arrangement that is a service contract to follow the internal-use software guidance to determine which implementation costs to defer and recognize as an asset. This guidance will become effective for us beginning in the first quarter of 2020 and can be adopted prospectively to all implementation costs incurred after the date of adoption or retrospectively. We are currently assessing the timing and impact of adopting the updated provisions.

3.Cash Equivalents and Marketable Securities

The following table summarizes our cash equivalents and marketable securities (in thousands):

 

 

March 31, 2019

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

Cost Basis

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Money market funds

$

24,281

 

 

$

 

 

$

 

 

$

24,281

 

U.S. Treasury securities

 

64,870

 

 

 

3

 

 

 

(15

)

 

 

64,858

 

Agency bonds

 

84,531

 

 

 

49

 

 

 

 

 

 

84,580

 

Corporate bonds

 

14,609

 

 

 

3

 

 

 

 

 

 

14,612

 

Commercial paper

 

43,273

 

 

 

4

 

 

 

(2

)

 

 

43,275

 

Total cash equivalents and marketable securities

 

231,564

 

 

 

59

 

 

 

(17

)

 

 

231,606

 

Less: cash equivalents

 

(24,281

)

 

 

 

 

 

 

 

 

(24,281

)

Total marketable securities

$

207,283

 

 

$

59

 

 

$

(17

)

 

$

207,325

 

 

 

December 31, 2018

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

Cost Basis

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Money market funds

$

40,849

 

 

$

 

 

$

 

 

$

40,849

 

U.S. Treasury securities

 

104,218

 

 

 

 

 

 

(78

)

 

 

104,140

 

Agency bonds

 

54,005

 

 

 

9

 

 

 

(15

)

 

 

53,999

 

Corporate bonds

 

11,897

 

 

 

 

 

 

(4

)

 

 

11,893

 

Commercial paper

 

56,171

 

 

 

 

 

 

(19

)

 

 

56,152

 

Total cash equivalents and marketable securities

 

267,140

 

 

 

9

 

 

 

(115

)

 

 

267,034

 

Less: cash equivalents

 

(40,849

)

 

 

 

 

 

 

 

 

(40,849

)

Total marketable securities

$

226,291

 

 

$

9

 

 

$

(115

)

 

$

226,185

 

 

12


 

As of March 31, 2019, the amortized cost and estimated fair value of our available-for-sale securities by contractual maturity are shown below (in thousands):

 

 

Amortized

 

 

Estimated

 

 

Cost

 

 

Fair Value

 

Debt securities maturing:

 

 

 

 

 

 

 

In one year or less

$

207,283

 

 

$

207,325

 

Total marketable securities

$

207,283

 

 

$

207,325

 

 

We determined that the gross unrealized losses on our marketable securities as of March 31, 2019 were temporary in nature. We currently do not intend to sell these securities prior to maturity and do not consider these investments to be other-than-temporarily impaired at March 31, 2019. There were no sales of available-for-sale securities in any of the periods presented.

4.

Equity Incentive Plans

The following table summarizes option activity under our equity incentive plans and related information:

 

 

Options Outstanding

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Number of

 

 

Exercise Price

 

 

Contractual

 

 

Shares

 

 

Per Share

 

 

Term (years)

 

Balance at December 31, 2018

 

3,710,181

 

 

$

28.37

 

 

 

 

 

Options granted

 

717,550

 

 

 

11.89

 

 

 

 

 

Options exercised

 

(23,430

)

 

 

9.53

 

 

 

 

 

Options forfeited

 

(207,131

)

 

 

27.40

 

 

 

 

 

Options expired

 

(39,539

)

 

 

30.18

 

 

 

 

 

Balance at March 31, 2019

 

4,157,631

 

 

 

25.66

 

 

7.08

 

Options exercisable at March 31, 2019

 

2,281,958

 

 

 

27.46

 

 

 

5.54

 

 

We have granted restricted stock awards, or RSAs, some of which were subject to performance conditions. RSAs are share awards that entitle the holder to receive freely tradable shares of our common stock upon vesting and are not forfeitable once fully vested. We based the fair value of RSAs on the closing sale price of our common stock on the grant date. For awards subject to performance conditions, we recognize stock-based compensation expense using the accelerated attribution recognition method when it is probable that the performance condition will be achieved.

The following table summarizes RSA activity under our 2013 Omnibus Incentive Plan and related information:

 

 

RSAs Outstanding

 

 

 

 

 

 

Weighted-Average

 

 

Number

 

 

Grant-Date

 

 

of Shares

 

 

Fair Value

 

Unvested balance at December 31, 2018

 

880,030

 

 

$

26.36

 

RSAs granted

 

532,300

 

 

 

11.48

 

RSAs vested

 

(127,236

)

 

 

32.38

 

RSAs forfeited

 

(205,487

)

 

 

24.44