achn-10q_20190930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended September 30, 2019

OR

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

For the transition period from                  to                 

Commission File Number 001-33095

 

ACHILLION PHARMACEUTICALS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

52-2113479

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

1777 Sentry Parkway West, Building 14, Suite 200, Blue Bell, PA

19422

(Address of principal executive offices)

(Zip Code)

 

(215) 709-3040

(Registrant’s telephone number, including area code)

 

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

 

ACHN

 

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, 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  

As of November 1, 2019, the registrant had 140,046,647 shares of Common Stock, $0.001 par value per sharesull, outstanding.

 

 

 

 


INDEX

 

 

 

PAGE

NUMBER

 

PART I. FINANCIAL INFORMATION

 

 

 

 

ITEM 1.

FINANCIAL STATEMENTS

3

 

 

 

 

Balance Sheets at September 30, 2019 and December 31, 2018 (unaudited)

3

 

 

 

 

Statements of Comprehensive Loss for the three and nine months ended September 30, 2019 and 2018 (unaudited)

4

 

 

 

 

Statements of Stockholders’ Equity for the three and nine months ended September 30, 2019 and 2018

5

 

 

 

 

Statements of Cash Flows for the nine months ended September 30, 2019 and 2018 (unaudited)

6

 

 

 

 

Notes to Financial Statements (unaudited)

7

 

 

 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

15

 

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

23

 

 

 

ITEM 4.

CONTROLS AND PROCEDURES

23

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

ITEM 1A.

RISK FACTORS

24

 

 

 

ITEM 6.

EXHIBITS

62

 

 

 

 

SIGNATURES

63

 

2


PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Achillion Pharmaceuticals, Inc.

Balance Sheets

(in thousands, except per share amounts)

(unaudited)

 

 

 

September 30, 2019

 

 

December 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

43,567

 

 

$

49,829

 

Marketable securities

 

 

110,121

 

 

 

221,148

 

Restricted cash

 

 

152

 

 

 

 

Accounts and other receivables

 

 

236

 

 

 

350

 

Prepaid expenses and other current assets

 

 

3,764

 

 

 

4,053

 

Total current assets

 

 

157,840

 

 

 

275,380

 

Marketable securities

 

 

75,274

 

 

 

 

Fixed assets, net

 

 

949

 

 

 

2,137

 

Operating lease right of use asset

 

 

2,265

 

 

 

 

Other assets

 

 

14

 

 

 

189

 

Restricted cash

 

 

 

 

 

152

 

Total assets

 

$

236,342

 

 

$

277,858

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,144

 

 

$

2,335

 

Accrued expenses

 

 

13,710

 

 

 

9,363

 

Current portion of operating lease liability

 

 

754

 

 

 

 

Current portion of long-term debt

 

 

 

 

 

131

 

Total current liabilities

 

 

17,608

 

 

 

11,829

 

Long-term portion of operating lease liability

 

 

1,518

 

 

 

 

Other long-term liabilities

 

 

 

 

 

17

 

Total liabilities

 

 

19,126

 

 

 

11,846

 

Commitments and contingencies (Note 11)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common Stock, $0.001 par value; 300,000 and 200,000 shares authorized at

   September 30, 2019 and December 31, 2018, respectively; 139,891 and 138,716 shares

   issued and outstanding at September 30, 2019 and December 31, 2018, respectively

 

 

140

 

 

 

139

 

Additional paid-in capital

 

 

947,747

 

 

 

938,998

 

Accumulated deficit

 

 

(730,894

)

 

 

(672,926

)

Accumulated other comprehensive income (loss)

 

 

223

 

 

 

(199

)

Total stockholders’ equity

 

 

217,216

 

 

 

266,012

 

Total liabilities and stockholders’ equity

 

$

236,342

 

 

$

277,858

 

 

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

 

3


Achillion Pharmaceuticals, Inc.

Statements of Comprehensive Loss

(in thousands, except per share amounts)

(unaudited)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue

 

$

 

 

$

 

 

$

 

 

$

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

14,993

 

 

 

12,842

 

 

 

45,744

 

 

 

37,915

 

General and administrative

 

 

6,061

 

 

 

4,447

 

 

 

16,326

 

 

 

17,924

 

Restructuring charges (Note 4)

 

 

 

 

 

75

 

 

 

655

 

 

 

1,900

 

Total operating expenses

 

 

21,054

 

 

 

17,364

 

 

 

62,725

 

 

 

57,739

 

Loss from operations

 

 

(21,054

)

 

 

(17,364

)

 

 

(62,725

)

 

 

(57,739

)

Other income (expense)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

1,473

 

 

 

1,484

 

 

 

4,775

 

 

 

4,093

 

Interest expense

 

 

(2

)

 

 

(4

)

 

 

(18

)

 

 

(25

)

Net loss

 

 

(19,583

)

 

 

(15,884

)

 

 

(57,968

)

 

 

(53,671

)

Basic and diluted net loss per share (Note 5)

 

 

(0.14

)

 

 

(0.12

)

 

 

(0.42

)

 

 

(0.39

)

Total comprehensive loss (Note 9)

 

$

(19,653

)

 

$

(15,673

)

 

$

(57,546

)

 

$

(53,490

)

Weighted average number of shares used in computing basic and

   diluted net loss per share

 

 

139,589

 

 

 

138,586

 

 

 

139,025

 

 

 

138,344

 

 

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

4


Achillion Pharmaceuticals, Inc.

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

(in thousands)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Total

Stockholders’

Equity

 

Balances at December 31, 2017

 

 

137,894

 

 

$

138

 

 

$

927,420

 

 

$

(602,654

)

 

$

(389

)

 

$

324,515

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(20,588

)

 

 

 

 

 

(20,588

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(296

)

 

 

(296

)

Stock compensation

 

 

 

 

 

 

 

 

2,335

 

 

 

 

 

 

 

 

 

2,335

 

Issuance of common stock upon exercise of stock

   options

 

 

446

 

 

 

 

 

 

1,304

 

 

 

 

 

 

 

 

 

1,304

 

Balances at March 31, 2018

 

 

138,340

 

 

$

138

 

 

$

931,059

 

 

$

(623,242

)

 

$

(685

)

 

$

307,270

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(17,199

)

 

 

 

 

 

(17,199

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

266

 

 

 

266

 

Stock compensation

 

 

 

 

 

 

 

 

3,550

 

 

 

 

 

 

 

 

 

3,550

 

Issuance of common stock upon exercise of stock

   options

 

 

206

 

 

 

1

 

 

 

569

 

 

 

 

 

 

 

 

 

570

 

Issuance of common stock under the employee stock

   purchase plan

 

 

40

 

 

 

 

 

 

102

 

 

 

 

 

 

 

 

 

102

 

Balances at June 30, 2018

 

 

138,586

 

 

$

139

 

 

$

935,280

 

 

$

(640,441

)

 

$

(419

)

 

$

294,559

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(15,884

)

 

 

 

 

 

(15,884

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

211

 

 

 

211

 

Stock compensation

 

 

 

 

 

 

 

 

1,611

 

 

 

 

 

 

 

 

 

1,611

 

Issuance of common stock upon exercise of stock

   options

 

 

3

 

 

 

 

 

 

9

 

 

 

 

 

 

 

 

 

9

 

Balances at September 30, 2018

 

 

138,589

 

 

$

139

 

 

$

936,900

 

 

$

(656,325

)

 

$

(208

)

 

$

280,506

 

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Total

Stockholders’

Equity

 

Balances at December 31, 2018

 

 

138,716

 

 

$

139

 

 

$

938,998

 

 

$

(672,926

)

 

$

(199

)

 

$

266,012

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(18,959

)

 

 

 

 

 

(18,959

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

320

 

 

 

320

 

Stock compensation

 

 

 

 

 

 

 

 

1,566

 

 

 

 

 

 

 

 

 

1,566

 

Balances at March 31, 2019

 

 

138,716

 

 

$

139

 

 

$

940,564

 

 

$

(691,885

)

 

$

121

 

 

$

248,939

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(19,426

)

 

 

 

 

 

(19,426

)

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

172

 

 

 

172

 

Stock compensation

 

 

 

 

 

 

 

 

1,588

 

 

 

 

 

 

 

 

 

1,588

 

Issuance of common stock upon exercise of stock

   options

 

 

103

 

 

 

 

 

 

291

 

 

 

 

 

 

 

 

 

291

 

Issuance of common stock under the employee stock

   purchase plan

 

 

32

 

 

 

 

 

 

79

 

 

 

 

 

 

 

 

 

79

 

Balances at June 30, 2019

 

 

138,851

 

 

$

139

 

 

$

942,522

 

 

$

(711,311

)

 

$

293

 

 

$

231,643

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(19,583

)

 

 

 

 

 

(19,583

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(70

)

 

 

(70

)

Stock compensation

 

 

 

 

 

 

 

 

1,707

 

 

 

 

 

 

 

 

 

1,707

 

Issuance of common stock upon exercise of stock

   options

 

 

1,040

 

 

 

1

 

 

 

3,518

 

 

 

 

 

 

 

 

 

3,519

 

Balances at September 30, 2019

 

 

139,891

 

 

$

140

 

 

$

947,747

 

 

$

(730,894

)

 

$

223

 

 

$

217,216

 

 

5


Achillion Pharmaceuticals, Inc.

Statements of Cash Flows

(in thousands)

(unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(57,968

)

 

$

(53,671

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

868

 

 

 

858

 

Non-cash stock-based compensation

 

 

4,861

 

 

 

7,496

 

Premium on purchases of marketable securities

 

 

(378

)

 

 

(59

)

Amortization of (discount) premium on marketable securities

 

 

(1,875

)

 

 

(166

)

Loss on disposal of fixed assets

 

 

381

 

 

 

 

Impairment of fixed assets

 

 

128

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts and other receivables

 

 

114

 

 

 

(22

)

Prepaid expenses and other assets

 

 

464

 

 

 

(477

)

Accounts payable

 

 

815

 

 

 

(3,630

)

Operating lease right-of-use asset

 

 

790

 

 

 

 

Operating lease liability

 

 

(783

)

 

 

 

Accrued expenses

 

 

4,327

 

 

 

(590

)

Other liabilities

 

 

(17

)

 

 

(49

)

Net cash used in operating activities

 

 

(48,273

)

 

 

(50,310

)

Cash flows from investing activities

 

 

 

 

 

 

 

 

Purchases of fixed assets

 

 

(177

)

 

 

(468

)

Purchases of marketable securities

 

 

(188,727

)

 

 

(173,029

)

Proceeds from sale of fixed assets

 

 

2

 

 

 

 

Maturities of marketable securities

 

 

227,155

 

 

 

214,749

 

Net cash provided by investing activities

 

 

38,253

 

 

 

41,252

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

3,810

 

 

 

1,883

 

Proceeds from sale of common stock under Employee Stock Purchase Plan

 

 

79

 

 

 

102

 

Repayments of debt

 

 

(131

)

 

 

(132

)

Net cash provided by financing activities

 

 

3,758

 

 

 

1,853

 

Net decrease in cash and cash equivalents

 

 

(6,262

)

 

 

(7,205

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

49,981

 

 

 

43,648

 

Cash, cash equivalents and restricted cash, end of period

 

$

43,719

 

 

$

36,443

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

18

 

 

$

26

 

Supplemental disclosure of non-cash activities

 

 

 

 

 

 

 

 

Purchases of fixed assets in accounts payable and accrued expenses

 

$

11

 

 

$

11

 

Operating lease right-of-use asset and liability (non-cash adoption balances)

 

$

1,889

 

 

$

 

Noncash change in right of use asset and liability from remeasurement of existing leases and addition of new lease

 

$

1,166

 

 

$

 

 

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

6


Achillion Pharmaceuticals, Inc.

Notes to Financial Statements

(in thousands, except per share amounts)

(unaudited)

1. Nature of the Business

Achillion Pharmaceuticals, Inc. (the “Company”) was incorporated on August 17, 1998 in Delaware. The Company is a clinical-stage biopharmaceutical company focused on advancing its oral factor D inhibitors into late-stage development and commercialization. Each of the product candidates in the Company’s factor D portfolio was discovered in the Company’s laboratories and is wholly owned by the Company. The Company is focusing its product development activities on complement-mediated diseases where there are no approved therapies or significant unmet medical needs persist despite existing therapies.

The Company is currently advancing novel orally administered small molecules from its platform that target complement factor D, an essential protein of the alternative pathway. The Company believes that the alternative pathway plays a critical role in a number of disease conditions including the therapeutic areas of hematology, nephrology, ophthalmology and neurology. Initially the Company is targeting paroxysmal nocturnal hemoglobinuria (“PNH”), a blood disorder, and C3 glomerulopathy (“C3G”) and immune complex membranoproliferative glomerulonephritis (“IC-MPGN”), two related rare diseases affecting the kidney. The Company plans to expand its drug development efforts into additional indications where it believes an overactive alternative pathway plays an important role in disease pathogenesis.

The Company incurred net losses of $19,583 and $15,884 for the three months ended September 30, 2019 and 2018, respectively, and $57,968 and $53,671 for the nine months ended September 30, 2019 and 2018, respectively. The Company had an accumulated deficit of $730,894 at September 30, 2019. The Company has funded its operations primarily through the sale of equity securities.

On October 15, 2019, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Alexion Pharmaceuticals, Inc., a Delaware corporation (“Alexion”) and Beagle Merger Sub, Inc., a Delaware corporation and wholly owned subsidiary of Alexion (“Merger Sub”), pursuant to which, among other things and subject to the satisfaction or waiver of specified conditions, Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a direct wholly owned subsidiary of Alexion. The Company expects to complete the Merger in the first half of 2020. However, the exact timing of completion of the Merger is subject to closing conditions specified in the Merger Agreement, many of which are outside of the Company’s control.

Based on the Company’s current development plan, whether the proposed Merger is consummated or not, the Company believes that its existing cash, cash equivalents and marketable securities will be sufficient to meet its current projected operating requirements for at least the next 12 months from the issuance of these financial statements. However, the Company’s future capital requirements may change and will depend upon numerous factors, including but not limited to:

 

changes in the likelihood or timing of the consummation of the proposed Merger;  

 

the scope, progress, results and costs of drug discovery, nonclinical development, laboratory testing and clinical trials for the Company’s product candidates;

 

the Company’s ability to enter into and the terms and timing of any collaborations, licensing or other arrangements that it may establish;

 

the number of future product candidates that the Company pursues and their development requirements;

 

the outcome, timing and costs of seeking regulatory approvals;

 

the costs of commercialization activities for any of the Company’s product candidates that receive marketing approval to the extent such costs are not the responsibility of any collaborators, including the costs and timing of establishing product sales, marketing, distribution and manufacturing capabilities;

 

subject to receipt of marketing approval, revenue, if any, received from commercial sales of the Company’s product candidates;

 

the Company’s headcount growth and associated costs as, and when, it seeks to expand its clinical development capabilities and establish a commercial infrastructure;

 

the costs involved in preparing, filing, prosecuting, maintaining, enforcing and defending patent and other intellectual property rights and defending against intellectual property-related claims;

7


 

the Company’s ability to raise debt or equity capital, including any changes in the credit or equity markets that may impact its ability to obtain capital in the future;

 

the costs associated with, and the outcome of, lawsuits against the Company, if any;

 

the Company’s acquisition and development of new technologies and product candidates; and

 

competing technological and market developments, including those currently unknown to the Company.

 

 

2. Recent Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02 “Leases—Topic 842” (“ASU No. 2016-02”). ASU No. 2016-02 requires the recognition of lease assets and lease liabilities by lessees for all leases greater than one year in duration and classified as operating leases under United States generally accepted accounting principles (“U.S. GAAP”). ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” (“ASU No. 2018-10”), and ASU No. 2018-11, “Leases (Topic 842): Targeted Improvements” (“ASU No. 2018-11”), both of which clarify and enhance the certain amendments made in ASU No. 2016-02 and were adopted in conjunction with ASU No. 2016-02. The Company adopted Topic 842 as of January 1, 2019 under the modified retrospective transition and elected the package of practical expedients. The Company determined that its operating lease commitments were subject to the new standard and recognized a $1,900 right-of-use asset and a $1,900 operating lease liability upon its adoption of ASU No. 2016-02.

In August 2018, FASB issued ASU No. 2018-13, “Fair Value Measurement (Subtopic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU No. 2018-13”) which modifies the disclosure requirements on fair value measurements. The amendments related to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. ASU No. 2018-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The Company does not believe ASU No. 2018-13 will have a material effect on its financial position and results of operations.

3. Basis of Presentation

The accompanying unaudited financial statements of the Company should be read in conjunction with the audited financial statements and notes as of and for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 7, 2019. The accompanying financial statements have been prepared in accordance with U.S. GAAP for interim financial information, in accordance with the instructions to Form 10-Q and the guidance in Article 10 of Regulation S-X. Accordingly, since they are interim financial statements, the accompanying financial statements do not include all of the information and disclosures required by U.S. GAAP for complete financial statements.

In the opinion of the Company, the accompanying unaudited financial statements contain all adjustments, consisting of only normal recurring adjustments, necessary for a fair statement of its financial position as of September 30, 2019, and its results of operations for the three and nine months ended September 30, 2019 and 2018, stockholders’ equity for the three and nine months ended September 30, 2019 and 2018 and cash flows for the nine months ended September 30, 2019 and 2018. The balance sheet as of December 31, 2018 was derived from audited annual financial statements but does not contain all of the footnote disclosures from the annual financial statements. Interim results are not necessarily indicative of results for a full year.

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the financial statements and notes thereto.

4. Restructuring Plan

In January 2019 and February 2018, the Company implemented restructuring plans that reduced employee headcount. The restructuring plans were implemented following an initial strategic assessment of the Company’s portfolio and continued evaluation of the Company’s operations to optimize its structure. Further, the Company opened an office in and recently changed its principal address to Blue Bell, Pennsylvania which provides the Company with access to the talent in that geographic area, and it is evaluating and optimizing the location of its functional areas.

8


In connection with these restructurings, the Company offered individuals whose employment was terminated a severance package that included severance pay, continuation of benefits and outplacement services. Restructuring costs during the three months ended September 30, 2019 and 2018 were $0 and $75, respectively. Restructuring costs during the nine months ended September 30, 2019 and 2018 were $655 and $1,900, respectively. Of these amounts, $181 related to non-cash stock-based compensation and the remainder were cash payments. All amounts relating to the restructurings have been paid.

5. Earnings (Loss) Per Share

Basic earnings (loss) per share (“EPS”) is calculated in accordance with Accounting Standards Codification (“ASC”) 260, “Earnings Per Share,” by dividing net income or loss attributable to common stockholders by the weighted average common stock outstanding. Diluted EPS is calculated by adjusting weighted average common shares outstanding for the dilutive effect of common stock options and warrants. In periods in which a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be antidilutive. Securities that could potentially dilute basic EPS in the future were not included in the computation of diluted EPS because to do so would have been antidilutive. The calculations of basic and diluted net loss per share are as follows:

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net loss (numerator)

 

$

(19,583

)

 

$

(15,884

)

 

$

(57,968

)

 

$

(53,671

)

Weighted-average shares, in thousands (denominator)

 

 

139,589

 

 

 

138,586

 

 

 

139,025

 

 

 

138,344

 

Basic and diluted net loss per share

 

$

(0.14

)

 

$

(0.12

)

 

$

(0.42

)

 

$

(0.39

)

 

Potentially dilutive securities outstanding consists solely of outstanding stock options. The Company had stock options outstanding to purchase 14,979 and 15,569 shares of common stock, respectively, as of September 30, 2019 and 2018, respectively.

6. Marketable Securities

The Company applies the provisions of ASC 820, “Fair Value Measurements and Disclosures,” for financial assets and liabilities measured on a recurring basis which requires disclosure that establishes a framework for measuring fair value and expands disclosures in the financial statements. The guidance requires that fair value measurements be classified and disclosed in one of the three categories:

Level 1: Quoted prices in active markets for identical assets and liabilities that the reporting entity has the ability to access at the measurement date;

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly; or

Level 3: Unobservable inputs.

The fair value of the Company’s marketable securities of $185,395 and $221,148 as of September 30, 2019 and December 31, 2018, respectively, is valued based on Level 2 inputs. The Company’s investments consist mainly of U.S. government and agency securities, government-sponsored bond obligations and certain other corporate debt securities. Fair value is determined by taking into consideration valuations obtained from third-party pricing services. The third-party pricing services utilize industry standard valuation models, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include reported trades of and broker/dealer quotes on the same or similar securities; issuer credit spreads; benchmark securities; and other observable inputs. The Company has assessed these as Level 2 within the fair value hierarchy of ASC 820. There were no transfers between levels within the hierarchy during the nine months ended September 30, 2019 and 2018. The Company classifies its entire investment portfolio as available for sale as defined in ASC 320, “Debt Securities.” Securities are carried at fair value with the unrealized gains (losses) reported in accumulated other comprehensive income.

The unrealized gain (loss) from marketable securities was $223 and $(199) at September 30, 2019 and December 31, 2018, respectively.

As of September 30, 2019 and December 31, 2018, none of the Company’s investments were determined to be other than temporarily impaired.

9


The following table summarizes the Company’s investments:

 

 

 

September 30, 2019

 

 

December 31, 2018

 

 

 

Amortized

Cost

 

 

Unrealized

Gain

 

 

Unrealized

(Loss)

 

 

Estimated

Fair Value

 

 

Amortized

Cost

 

 

Unrealized

Gain

 

 

Unrealized

(Loss)

 

 

Estimated

Fair Value

 

Commercial Paper

 

$

19,862

 

 

$

38

 

 

$

 

 

$

19,900

 

 

$

36,235

 

 

$

49

 

 

$

(1

)

 

$

36,283

 

Corporate Debt Securities

 

 

111,240

 

 

 

167

 

 

 

(7

)

 

$

111,400

 

 

 

159,348

 

 

 

5

 

 

 

(238

)

 

 

159,115

 

Government and Agency Securities

 

 

54,070

 

 

 

32

 

 

 

(7

)

 

 

54,095

 

 

 

25,764

 

 

 

 

 

 

(14

)

 

 

25,750

 

Total

 

$

185,172

 

 

$

237

 

 

$

(14

)

 

$

185,395

 

 

$

221,347

 

 

$

54

 

 

$

(253

)

 

$

221,148

 

 

 

7. Accrued Expenses

Accrued expenses consisted of the following:

 

 

 

September 30,

2019

 

 

December 31,

2018

 

Accrued compensation

 

$

3,694

 

 

$

4,397

 

Accrued research and development expenses

 

 

8,467

 

 

 

3,414

 

Accrued professional expenses

 

 

1,270

 

 

 

1,049

 

Other accrued expenses

 

 

279

 

 

 

503

 

Total

 

$

13,710

 

 

$

9,363

 

 

Accrued research and development expenses are comprised of amounts owed to third-party contract research organizations, clinical investigators, laboratories and data managers for research and development work performed on behalf of the Company.

8. Stock-Based Compensation

The Company’s Amended and Restated 2015 Stock Incentive Plan (the “2015 Plan”), is administered by the Company’s board of directors and provides for the grant of incentive stock options, nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights and other stock-based awards. The Company’s officers, employees, consultants, advisors and directors are eligible to receive awards under the 2015 Plan; however, incentive stock options may only be granted to employees. Stock option awards are exercisable for a period determined by the Company, but in no event longer than ten years from the date of the grant. Stock option awards generally vest as to 25% of the shares underlying the option on the first anniversary of the date of grant and as to 6.25% of the shares underlying the option quarterly thereafter for the following three years, subject to continued service. In May 2018, the Company’s stockholders approved an amendment and restatement of the 2015 Plan which included an 8,200 increase to the number of shares of common stock that may be issued pursuant to the 2015 Plan. There were 8,535 shares available to be granted under the 2015 Plan as of September 30, 2019.

A summary of the status of the Company’s stock option activity for the nine months ended September 30, 2019 is presented in the table and narrative below:

 

 

 

Options

 

 

Weighted

Average

Exercise

Price

 

Outstanding at January 1, 2019

 

 

14,950

 

 

$

5.14

 

Granted

 

 

5,398

 

 

 

2.28

 

Exercised

 

 

(1,142

)

 

 

3.34

 

Cancelled/Forfeited

 

 

(4,227

)

 

 

6.61

 

Outstanding at September 30, 2019

 

 

14,979

 

 

$

3.83

 

Options exercisable at September 30, 2019

 

 

6,139

 

 

$

5.46

 

Weighted-average fair value of options granted during

   the period

 

 

 

 

 

$

1.59

 

 

10


The Company utilizes the Black-Scholes option pricing model for determining the estimated fair value for stock-based awards. The Black-Scholes model requires the use of assumptions which determine the fair value of the stock-based awards. The assumptions used to value options granted are as follows:

 

 

 

Nine Months Ended

 

 

 

September 30, 2019

 

 

September 30, 2018

 

Expected term of option

 

5.6 - 6.0 years

 

 

6.0 years

 

Expected volatility

 

73% - 82%

 

 

79% - 80%

 

Risk free interest rate

 

1.41% - 2.60%

 

 

2.62% - 2.98%

 

Expected dividend yield

 

 

0

%

 

 

0

%

 

Total compensation expense recorded in the accompanying statements of operations associated with stock option grants made to employees was $1,688 and $1,506 for the three months ended September 30, 2019 and 2018, respectively, and $4,655 and $7,281 for the nine months ended September 30, 2019 and 2018, respectively. Total compensation expense recorded in the accompanying statements of operations associated with stock option grants made to consultants was $0 and $89 for the three months ended September 30, 2019 and 2018, respectively, and $154 and $161 for the nine months ended September 30, 2019 and 2018, respectively. The Company recorded no tax benefit related to these stock options since the Company currently maintains a full valuation allowance on its deferred tax assets.

As of September 30, 2019, the intrinsic value of the stock options outstanding was $10,501, of which $1,764 related to vested stock options and $8,737 related to unvested stock options. The intrinsic value of stock options is calculated based on the difference between the exercise prices of the underlying common stock and the quoted stock price of the Company’s common stock as of the reporting date.

As of September 30, 2019, the total compensation cost related to unvested stock options not yet recognized in the financial statements was approximately $12,719, net of estimated forfeitures, and the weighted average period over which this amount is expected to be recognized is 2.8 years.

9. Comprehensive Loss

The Company reports and presents comprehensive income (loss) in accordance with ASC 220, “Comprehensive Income,” which establishes standards for reporting and display of comprehensive income (loss) and its components in a full set of general purpose financial statements. The objective of the statement is to report a measure of all changes in equity of an enterprise that result from transactions and other economic events of the period other than transactions with owners. The Company’s other comprehensive income (loss) arises from net unrealized gains (losses) on marketable securities. The unrealized gain (loss) from marketable securities was $223 and $(199) at September 30, 2019 and December 31, 2018, respectively.

10. Leases

Effective January 1, 2019, the Company adopted ASU No. 2016-02, “Leases (Topic 842)” and the related ASUs that followed (collectively referred to as “Topic 842”). Topic 842 requires the recognition of right of use (“ROU”) lease assets and liabilities by lessees for all leases greater than one year in duration and classified as operating leases under U.S. GAAP.

The Company elected the package of practical expedients which allows the Company to apply the transition provision for Topic 842 at its adoption date instead of at the earliest comparative period presented in our financial statements. Therefore, existing leases at January 1, 2019 were recognized and measured but without retrospective application. The Company also elected the short-term lease practical expedient but did not elect the hindsight practical expedient.

The impact of Topic 842 on the Company’s balance sheet beginning January 1, 2019 was the recognition of ROU assets and lease liabilities for operating leases. There was no income to the Company’s statement of comprehensive loss or beginning retained earnings related to the adoption of Topic 842.

11


The Company’s operating lease commitments consist of obligations under operating leases for its facilities and office equipment. The Company has leases for its operating facilities in New Haven, Connecticut and Blue Bell, Pennsylvania. The lease agreements require monthly lease payments through September 2022 and November 2022, respectively. In September 2019, the Company modified its existing building lease for its New Haven, CT facilities to exit the majority of its current space early and entered into a lease agreement for new space in the same building in New Haven, CT. The Company does not have any leases that are classified as finance leases.

The Company determines if an arrangement is a lease at inception. For purposes of calculating operating lease liabilities, lease terms may include options to extend or terminate the lease when it becomes probable that the Company will exercise the option. As the rate implicit in the lease is generally not readily determinable for the Company’s operating leases, the discount rates used to determine the present value of its lease liability are based on the Company’s incremental borrowing rate at the lease commencement date.

The following table summarizes the Company’s lease obligations as of September 30, 2019:

 

Year Ending December 31,

 

 

 

 

Remainder of 2019

 

$

288

 

2020

 

 

800

 

2021

 

 

802

 

2022

 

 

638

 

Total lease payments

 

 

2,528

 

Less: imputed interest

 

 

(256

)

Total

 

$

2,272

 

 

The following table summarizes the Company’s lease obligations as of December 31, 2018:

 

Year Ending December 31,

 

 

 

 

2019

 

$

1,239

 

2020

 

 

551

 

2021

 

 

322

 

2022

 

 

287

 

Total

 

$

2,399

 

 

Expense related to the Company’s operating leases is included in operating expenses and was $262 and $235 for the three months ended September 30, 2019 and 2018, respectively, and $858 and $671 for the nine months ended September 30, 2019 and 2018, respectively.

As of September 30, 2019, the carrying value of the ROU assets was $2,265 and is separately stated on the Company’s balance sheet. The related short-term and long-term liabilities as of September 30, 2019 were $754 and $1,518, respectively.

During the nine months ended September 30, 2019 cash paid for operating leases was $783. As of September 30, 2019, the weighted average remaining lease term was 2.9 years and the weighted average incremental borrowing rate was 7.1%.

11. Commitments and Contingencies

From time to time, in the ordinary course of business, the Company may be subject to litigation and regulatory examinations as well as information gathering requests, inquiries and/or investigations. The Company is not currently subject to any matters where it believes there is a reasonable possibility that a material loss may be incurred.

12. Income Taxes

During the three months ended June 30, 2019, the Company updated its review of “ownership changes” through December 31, 2018 as defined under Section 382 of the Internal Revenue Code of 1986, as amended. Based on this review, the Company’s federal net operating loss carryforwards increased by $115,366. This increase was recorded with an offsetting valuation allowance during the three months ended September 30, 2019. The Company’s total federal net operating loss carryforwards were determined to be $541,254.

 

12


13. Subsequent Event

 

On October 15, 2019, the Company entered into the Merger Agreement with Alexion and Merger Sub, pursuant to which, among other things and subject to the satisfaction or waiver of specified conditions, Merger Sub will merge with and into the Company, with the Company surviving the Merger as a direct wholly owned subsidiary of Alexion.

 

Under the terms of the Merger Agreement, at the time the Merger becomes effective (the “Effective Time”) each share of Company common stock issued and outstanding immediately prior to the Effective Time (other than certain excluded shares as described in the Merger Agreement) will be automatically converted into (i) the right to receive $6.30 in cash, without interest, and (ii) one (1) contractual contingent value right (a “CVR”) pursuant to the CVR agreement that Alexion and a rights agent mutually agreeable to Alexion and the Company will enter into at or prior to the Effective Time.

 

In addition, at the Effective Time, each (i) compensatory option to purchase shares of Company common stock (a “Company Stock Option”) that is then outstanding, unexercised and vested (or which, pursuant to its terms or the terms of a contract in effect on October 15, 2019, shall become vested upon the consummation of the Merger), (ii) unvested Company Stock Option held by a Specified Holder (as defined in the Merger Agreement) (each Company Stock Option held by a Specified Holder, a “Specified Holder Option”) who has, at or prior to the Effective Time, delivered to the Company and not revoked a Non-Competition Agreement (as that term is defined in the Merger Agreement), (iii) unvested Company Stock Option, that is not a Specified Holder Option that is held by an officer or employee of the Company other than a Specified Holder who has, at or prior to the Effective Time, delivered to the Company and not revoked a General Release (as that term is defined in the Merger Agreement), and (iv) Company Stock Option that is then outstanding and unexercised, whether or not vested, that is held by an individual who is not an officer or employee of the Company, which, in each case, has a per share exercise price that is less than the Cash Merger Consideration (each, an “In the Money Option”), will be cancelled and converted into the right to receive both (i) a cash payment equal to (A) the excess, of (x) the Cash Merger Consideration over (y) the exercise price payable per share of Company common stock under such Company Stock Option, multiplied by (B) the total number of shares of Company common stock subject to such In the Money Option immediately prior to the Effective Time (without regard to vesting) and (ii) one CVR for each share of Company common stock subject to such In the Money Option immediately prior to the Effective Time (without regard to vesting).

 

At the Effective Time, each (i) Company Stock Option other than an In the Money Option that is then outstanding, unexercised and vested (or which, pursuant to its terms or the terms of a contract in effect on October 15, 2019, shall become vested upon the consummation of the Merger), (ii) unvested Company Stock Option that is not an In the Money Option that is held by a Specified Holder who has, at or prior to the Effective Time, delivered to the Company and not revoked a Non-Competition Agreement, (iii) unvested Company Stock Option that is not an In the Money Option held by an officer or employee of the Company other than a Specified Holder who has, at or prior to the Effective Time, delivered to the Company and not revoked a General Release, (iv) Company Stock Option other than an In the Money Option that is then outstanding and unexercised, whether or not vested, that is held by an individual who is not an officer or employee of the Company (each, an “Out of the Money Option”), will be cancelled and, except as described below, converted into the right to receive a cash payment, if any, from Alexion with respect to each share of Company common stock subject to the Out of the Money Option upon each Milestone Payment Date (as defined in the CVR Agreement) (each, a “Valuation Point”) which occurs after the Effective Time, equal to (i) the amount by which, as of the Valuation Point, the sum of (x) the Cash Merger Consideration, (y) the amount per share of Company common stock in cash previously paid in respect of any earlier Valuation Points (if any) and (z) the amount per share of Company common stock in cash to be paid at such Valuation Point under the CVR Agreement (collectively, the “Per Share Value Paid”) exceeds the exercise price payable per share of Company common stock under such Out of the Money Option, less (ii) the amount of all payments previously received with respect to such Out of the Money Option. Any Out of the Money Options with an exercise price payable per share of Company common stock equal to or greater than $8.30 and any other Company Stock Options that are not vested as of the effective time and which do not vest pursuant to their respective terms or the terms of a contract in effect on October 15, 2019 that are held by (1) a Specified Holder who has not, at or prior to the Effective Time, delivered to the Company and not revoked a Non-Competition Agreement or (2) an officer or employee of the