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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended June 30, 2020
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: 001-37985
ANAPTYSBIO, INC.
(Exact name of registrant as specified in its charter)
Delaware20-3828755
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification Number)
10421 Pacific Center Court, Suite 200
San Diego, CA 92121
(Address of principal executive offices and zip code)
(858) 362-6295
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 par value ANABThe Nasdaq Stock Market LLC
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 FilerAccelerated Filer
Non-accelerated FilerSmaller 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 Act).    Yes      No  
As of August 6, 2020, there were 27,303,581 shares of the Registrant’s Common Stock outstanding.



AnaptysBio, Inc.
TABLE OF CONTENTS
 
Page Number
PART I. FINANCIAL INFORMATION
PART II. OTHER INFORMATION



PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
AnaptysBio, Inc.
Consolidated Balance Sheets
(in thousands, except par value data)
June 30, 2020December 31, 2019
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents$221,172  $171,017  
Short-term investments156,706  203,210  
Prepaid expenses and other current assets6,638  3,506  
Total current assets384,516  377,733  
Property and equipment, net1,495  1,618  
Long-term investments14,321  54,305  
Other long-term assets1,354  1,481  
Restricted cash60  60  
Total assets$401,746  $435,197  
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$6,289  $16,237  
Accrued expenses12,916  11,052  
Notes payable, current portion  1,375  
Other current liabilities925  871  
Total current liabilities20,130  29,535  
Other long-term liabilities180  654  
Stockholders’ equity:
Preferred stock, $0.001 par value, 10,000 shares authorized and no shares, issued or outstanding at June 30, 2020 and December 31, 2019, respectively
    
Common stock, $0.001 par value, 500,000 shares authorized, 27,287 shares and 27,255 shares issued and outstanding at June 30, 2020 and December 31, 2019, respectively
27  27  
Additional paid in capital654,492  648,669  
Accumulated other comprehensive income753  338  
Accumulated deficit(273,836) (244,026) 
Total stockholders’ equity381,436  405,008  
Total liabilities and stockholders’ equity $401,746  $435,197  
 See accompanying notes to unaudited consolidated financial statements.
1


AnaptysBio, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except per share data)
(unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
2020201920202019
Collaboration revenue$  $5,000  $15,000  $5,000  
Operating expenses:
Research and development17,948  27,350  38,916  47,981  
General and administrative4,687  4,307  8,972  8,448  
Total operating expenses22,635  31,657  47,888  56,429  
Loss from operations(22,635) (26,657) (32,888) (51,429) 
Other income (expense), net:
Interest expense
  (281)   (601) 
Interest income1,061  2,957  2,958  5,945  
     Other income (expense), net26  (41) 120  (34) 
Total other income (expense), net1,087  2,635  3,078  5,310  
Loss before income taxes(21,548) (24,022) (29,810) (46,119) 
Provision for income taxes   60    79  
Net loss(21,548) (23,962) (29,810) (46,040) 
Other comprehensive (loss) income:
Unrealized (loss) income on available for sale securities, net of tax of $0, $99, $0 and $214, respectively
(392) 370  415  797  
Comprehensive loss$(21,940) $(23,592) $(29,395) $(45,243) 
Net loss per common share:
      Basic and diluted$(0.79) $(0.89) $(1.09) $(1.70) 
Weighted-average number of shares outstanding:
      Basic and diluted27,279  27,026  27,271  27,004  
 See accompanying notes to unaudited consolidated financial statements.

2


AnaptysBio, Inc.
Consolidated Statement of Stockholders’ Equity
(in thousands)
(unaudited)
Common StockAdditional
Paid-in
Capital
Accumulated Other Comprehensive (Loss) IncomeAccumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance, December 31, 201927,255  $27  $648,669  $338  $(244,026) $405,008  
Shares issued under employee stock plans
22  —  36  —  —  36  
Stock-based compensation
—  —  2,975  —  —  2,975  
Comprehensive income, net
—  —  —  807  —  807  
Net loss
—  —  —  —  (8,262) (8,262) 
Balance, March 31, 202027,277  27  651,680  1,145  (252,288) 400,564  
Shares issued under employee stock plans
10  —  71  —  —  71  
Stock-based compensation
—  —  2,741  —  —  2,741  
Comprehensive loss, net
—  —  —  (392) —  (392) 
Net loss
—  —  —  —  (21,548) (21,548) 
Balance, June 30, 202027,287  $27  $654,492  $753  $(273,836) $381,436  
See accompanying notes to unaudited consolidated financial statements.
3


AnaptysBio, Inc.
Consolidated Statement of Stockholders’ Equity
(in thousands)
(unaudited)
Common StockAdditional
Paid-in
Capital
Accumulated Other Comprehensive (Loss) IncomeAccumulated
Deficit
Total
Stockholders’
Equity
SharesAmount
Balance, December 31, 201826,922  $27  $633,251  $(223) $(146,690) $486,365  
Shares issued under employee stock plans
84  —  574  —  —  574  
Stock-based compensation
—  —  2,867  —  —  2,867  
Comprehensive income, net
—  —  —  427  —  427  
Net loss
—  —  —  —  (22,078) (22,078) 
Balance, March 31, 201927,006  27  636,692  204  (168,768) 468,155  
Shares issued under employee stock plans
39  —  215  —  —  215  
Stock-based compensation
—  —  3,643  —  —  3,643  
Comprehensive income, net
—  —  —  370  —  370  
Net loss
—  —  —  —  (23,962) (23,962) 
Balance, June 30, 201927,045  $27  $640,550  $574  $(192,730) $448,421  
See accompanying notes to unaudited consolidated financial statements.
4


AnaptysBio, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
Six Months Ended
June 30,
20202019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss$(29,810) $(46,040) 
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization277  239  
Stock-based compensation5,716  6,510  
Accretion/amortization of investments, net61  (1,926) 
Non-cash interest expense  332  
Changes in operating assets and liabilities:
Receivable from collaborative partners  (5,000) 
Prepaid expenses and other assets(2,478) 1,609  
Accounts payable and other liabilities(8,488) 12,660  
Net cash used in operating activities(34,722) (31,616) 
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of investments(86,947) (132,313) 
Sales and maturities of investments173,262  200,267  
Purchases of property and equipment(170) (421) 
Net cash provided by investing activities86,145  67,533  
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, upon the exercise of stock options107  789  
Payments on notes payable(1,375) (3,750) 
Net cash used in financing activities(1,268) (2,961) 
Net increase in cash, cash equivalents, and restricted cash50,155  32,956  
Cash, cash equivalents and restricted cash, beginning of period171,077  113,656  
Cash, cash equivalents and restricted cash, end of period$221,232  $146,612  
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid$4  $301  
Non-cash investing and financing activities:
Amounts accrued for property and equipment$25  $14  
See accompanying notes to unaudited consolidated financial statements.
5


AnaptysBio, Inc.
Notes to Unaudited Consolidated Financial Statements
1. Description of the Business
AnaptysBio, Inc. (“we,” “us,” “our,” or the “Company”) was incorporated in the state of Delaware in November 2005. We are a clinical stage biotechnology company developing first-in-class immunology therapeutic product candidates to patients. We are focused on emerging immune control mechanisms applicable to inflammation and immuno-oncology indications. We develop our product candidates using our proprietary antibody discovery technology platform, which is based upon a breakthrough understanding of the natural process of antibody generation, known as somatic hypermutation, (“SHM”), and replicates this natural process of antibody generation in vitro. We currently generate revenue from milestones achieved under our collaborative research and development arrangements.
        Since our inception, we have devoted our primary effort to research and development activities. Our financial support has been provided primarily from the sale of our common and preferred stock, as well as through funds received under our collaborative research and development agreements. Going forward, as we continue our expansion, we may seek additional financing and/or strategic investments. However, there can be no assurance that any additional financing or strategic investments will be available to us on acceptable terms, if at all. If events or circumstances occur such that we do not obtain additional funding, we will most likely be required to reduce our plans and/or certain discretionary spending, which could have a material adverse effect on our ability to achieve our intended business objectives. Management believes its currently available resources will provide sufficient funds to enable the Company to meet its operating plans for at least the next twelve months. The accompanying consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission, (the “SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. generally accepted accounting principles, (“U.S. GAAP”), have been omitted. The accompanying unaudited consolidated financial statements include all known adjustments necessary for a fair presentation of the results of interim periods as required by U.S. GAAP. These adjustments consist primarily of normal recurring accruals and estimates that impact the carrying value of assets and liabilities. Also, certain reclassifications have been made to 2019 financial information to conform to the current year presentation of prepaid expenses and other assets on the Consolidated Statements of Cash Flows. Operating results for the six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020. Interim results are not necessarily indicative of results for a full year, particularly in light of the novel coronavirus pandemic (“COVID-19”), and its impact on domestic and global economies. To limit the spread of COVID-19, governments have taken various actions including the issuance of stay-at-home orders and social distancing guidelines, causing some businesses to suspend operations and or experience a reduction in demand for many products from direct or ultimate customers. Accordingly, businesses have adjusted, reduced or suspended operating activities. The effects of the stay-at-home orders and our work-from-home policies may negatively impact productivity, disrupt our business and delay our development programs, regulatory and commercialization timelines, the magnitude of which will depend, in part, on the length and severity of the restrictions and other limitations on our ability to conduct our business in the ordinary course. Our future research and development expenses and general and administrative expenses may vary significantly if we experience an increased impact from COVID-19 on the costs and timing associated with the conduct of our clinical trials and other related business activities. The financial statements should be read in conjunction with our audited financial statements for the year ended December 31, 2019, included in our Annual Form 10-K.
Basis of Consolidation
The accompanying consolidated financial statements include us and our wholly-owned Australian subsidiary. All intercompany accounts and transactions have been eliminated in consolidation. We operate in one reportable segment and our functional and reporting currency is the U.S. dollar.
6


Use of Estimates
The preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. We base our estimates and assumptions on historical experience when available and on various factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition, including expenses, reserves and allowances, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain it or treat COVID-19, as well as the economic impact on local, regional, national and international markets. Our actual results could differ from these estimates under different assumptions or conditions.
Net Loss Per Common Share
Basic net loss per common share is computed by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted-average number of common equivalent shares outstanding for the period, as well as any dilutive effect from outstanding stock options and warrants using the treasury stock method. For each period presented, there is no difference in the number of shares used to calculate basic and diluted net loss per share.
The following table sets forth the weighted average outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because to do so would be anti-dilutive (in common stock equivalent shares):
Three Months Ended
June 30,
Six Months Ended
June 30,
(in thousands)2020201920202019
Options to purchase common stock2,838  2,525  2,930  2,443  
Accounting Pronouncements Recently Adopted
In December 2019, the Financial Accounting Standards Board “FASB” issued ASU 2019-12, Income Taxes (Topic 740) intended to simplify the accounting for income taxes. The guidance removes the following exceptions: 1) exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items, 2) exception to the requirement to recognize a deferred tax liability for equity method investments when a foreign subsidiary becomes an equity method investment, 3) exception to the ability not to recognize a deferred tax liability for a foreign subsidiary when a foreign equity method investment becomes a subsidiary and 4) exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year. Additionally, the guidance simplifies the accounting for income taxes by: 1) requiring that an entity recognize a franchise tax (or similar tax) that is partially based on income as an income-based tax and account for any incremental amount incurred as a non-income-based tax, 2) requiring that an entity evaluate when a step up in the tax basis of goodwill should be considered part of the business combination in which the book goodwill was originally recognized and when it should be considered a separate transaction, 3) specifying that an entity is not required to allocate the consolidated amount of current and deferred tax expense to a legal entity that is not subject to tax in its separate financial statements (although the entity may elect to do so (on an entity-by-entity basis) for a legal entity that is both not subject to tax and disregarded by the taxing authority), 4) requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date and 5) making minor improvements for income tax accounting related to employee stock ownership plans and investments in qualified affordable housing projects accounted for using the equity method. The guidance will be effective for fiscal years and interim periods beginning after December 15, 2020. Different components of the guidance require retrospective, modified retrospective or prospective adoption, and early adoption is permitted. We early adopted this standard on January 1, 2020 and the adoption of the standard did not have a material impact to our consolidated financial statements.
7


In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (Topic 326), which changes the accounting treatment for recognizing the impairment of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. The new guidance also eliminates the other-than-temporary impairment model for available-for-sale (AFS) debt securities. Entities will begin to recognize credit losses on AFS debt securities as allowances rather than as reductions in the carrying value of the securities. Impairment that is not credit-related impairment will continue to be recognized in other comprehensive income and entities will no longer consider the length of time a security has been in an unrealized loss position when determining whether a credit loss exists. ASU 2016-13 becomes effective for annual and interim periods beginning after December 15, 2019. We adopted this standard prospectively on January 1, 2020 and the adoption of the standard did not have a material impact to our consolidated financial statements as credit losses are not expected to be significant based on historical trends, the financial condition of our investments and external market factors. We will continue to actively monitor the impact of the recent coronavirus (COVID-19) pandemic on expected credit losses.
3. Balance Sheet Accounts and Supplemental Disclosures
Property and Equipment
Property and equipment consist of the following:
(in thousands)June 30, 2020December 31, 2019
Laboratory equipment$5,037  $4,911  
Office furniture and equipment823  811  
Leasehold improvements575  575  
Property and equipment, gross6,435  6,297  
Less: accumulated depreciation and amortization(4,940) (4,679) 
Total property and equipment, net$1,495  $1,618  
 
Accrued Expenses
Accrued expenses consist of the following:
(in thousands)June 30, 2020December 31, 2019
Accrued compensation and related expenses$2,036  $2,152  
Accrued professional fees542  435  
Accrued research, development and manufacturing expenses10,126  8,196  
Other212  269  
Total accrued expenses$12,916  $11,052  
4. Collaborative Research and Development Agreements
GlaxoSmithKline Collaboration
In March 2014, we entered into a Collaboration and Exclusive License Agreement (the “GSK Agreement”) with TESARO, Inc. an oncology-focused biopharmaceutical company now a part of GlaxoSmithKline (“GSK”). Under the terms of the agreement, we agreed to perform certain discovery and early preclinical development of therapeutic antibodies with the goal of generating immunotherapy antibodies for subsequent preclinical, clinical, regulatory and commercial development to be performed by GSK. Under the terms of the agreement, GSK paid an upfront license fee of $17.0 million in March 2014 and agreed to provide funding to us for research and development services related to antibody discovery programs for three specific targets. In November 2014, we and TESARO, Inc. entered into Amendment No. 1 to the GSK Agreement to add an antibody discovery program against an undisclosed fourth target for an upfront license fee of $2.0 million.
8


For each development program, we are eligible to receive milestone payments of up to $18.0 million if certain preclinical and clinical trial events are achieved by GSK, up to an additional $90.0 million if certain U.S. and European regulatory submissions and approvals in multiple indications are achieved, and up to an additional $165.0 million upon the achievement of specified levels of annual worldwide net sales. We will also be eligible to receive tiered single-digit royalties related to worldwide net sales of products developed under the collaboration. Unless earlier terminated by either party upon specified circumstances, the agreement will terminate, with respect to each specific developed product, upon the latter of the 12th anniversary of the first commercial sale of the product or the expiration of the last to expire of any patent. Prior to the adoption of ASC 606, Revenue from Contracts with Customers, we determined that the upfront license fees and research funding under the agreement, as amended, should be accounted for as a single unit of accounting and that the upfront license fees should be deferred and recognized as revenue over the same period that the research and development services are performed. In December 2015, we determined that the research and development services would be extended through December 31, 2016. As a result, the period over which the unrecognized license fees and milestones were recognized was extended through December 31, 2016, and have since been recognized in full.
We assessed this arrangement in accordance with ASC 606 and concluded that the contract counterparty, GSK, is a customer. We identified the following material promises under the GSK Agreement: (1) the licenses under certain patent rights relating to six discovery programs (four targets) and transfer of certain development and regulatory information, (2) R&D services and (3) Joint Steering Committee meetings. We considered the research and discovery capabilities of GSK for these specific programs, GSK’s inability to sub-license, and the fact that the discovery and optimization of these antibodies is proprietary and could not, at the time of the contract inception, be provided by other vendors, to conclude that the license does not have stand-alone functionality and is therefore not distinct. Additionally, we determined that the steering committee participation would not have been provided without the R&D services and license agreement. Based on these assessments, we identified all services to be interrelated, and therefore concluded that the promises should be combined into a single performance obligation at the inception of the arrangement.
As of June 30, 2020, the transaction price includes the upfront payment, research reimbursement revenue, and milestones earned to date, which are allocated in their entirety to the single performance obligation. We earned and recognized two clinical milestones for $15.0 million during the six months ended June 30, 2020. No other future clinical or regulatory milestones have been included in the transaction price, as all milestone amounts were subject to the revenue constraint. As part of the constraint evaluation, we considered numerous factors including the fact that the receipt of milestones is outside of our control and contingent upon success in future clinical trials, an outcome that is difficult to predict, and the licensees’ efforts. Any consideration related to sales-based milestones, including royalties, will be recognized when the related sales occur as they were determined to relate predominantly to the IP license granted to GSK and therefore have also been excluded from the transaction price. We will re-evaluate the variable transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.
Milestones recognized through June 30, 2020 under the GSK Agreement are as follows:
Anti-PD-1
(GSK4057190A/Dostarlimab)
Anti-TIM-3
(GSK4069889A/Cobolimab)
Anti-LAG-3
(GSK40974386/Encelimab)
Milestone EventAmountQuarter RecognizedAmountQuarter RecognizedAmountQuarter Recognized
Initiated in vivo toxicology studies using good laboratory practices (GLPs)
$1.0MQ2'15$1.0MQ4'15$1.0MQ3'16
IND clearance from the FDA$4.0MQ1'16$4.0MQ2'16$4.0MQ2'17
Phase 2 clinical trial initiation$3.0MQ2'17$3.0MQ4'17$3.0MQ4'19
Phase 3 clinical trial initiation - first indication$5.0MQ3'18
Phase 3 clinical trial initiation - second indication$5.0MQ2'19
Filing of the first NDA - first indication$10.0MQ1'20
Filing of the first MAA - first indication$5.0MQ1'20

9


Milestones achieved during the discovery period were recognized as revenue pro-rata through December 31, 2016. Milestones achieved during fiscal 2017 were recognized as revenue in the period earned, while milestones after December 31, 2017 are recognized upon determination that a significant reversal of revenue would not be probable. Cash is generally received within 30 days of milestone achievement.
We recognized $0 and $15.0 million in revenue under this agreement during the three and six months ended June 30, 2020, respectively, and $0 and $5.0 million during the three and six months ended 2019, respectively.
Antibody Generation Agreement with Bristol-Myers Squibb
In December 2011, we entered into a license and collaboration agreement (the “BMS Agreement”) with Celgene, now a part of Bristol-Myers Squibb (“BMS”), to develop therapeutic antibodies against multiple targets. We granted BMS the option to obtain worldwide commercial rights to antibodies generated against each of the targets under the agreement, which option was triggered on a target-by-target basis by our delivery of antibodies meeting certain pre-specified parameters pertaining to each target under the agreement.
The agreement provided for an upfront payment of $6.0 million from BMS, which we received in 2011 and recognized through 2014, milestone payments of up to $53.0 million per target, low single-digit royalties on net sales of antibodies against each target, and reimbursement of specified research and development costs.
We assessed this arrangement in accordance with ASC Topic 606 and concluded that the contract counterparty, BMS, is a customer. We identified the following material promises under the BMS Agreement: (1) the licenses under certain patent rights relating to four targets and transfer of certain development and regulatory information, (2) R&D services, (3) a written report documenting findings and (4) Steering Committee meetings. We considered the research and discovery capabilities of BMS, BMS’s inability to sub-license the four targets, and the fact that the discovery and optimization of these antibodies is proprietary and could not, at the time of the contract inception, be provided by other vendors, to conclude that the license does not have stand-alone functionality and is therefore not distinct. Additionally, we determined that the report of findings and steering committee participation would not have been provided without the R&D services and license agreement. Based on these assessments, we identified all services to be interrelated, and therefore concluded that the promises should be combined into a single performance obligation at the inception the arrangement.
As of June 30, 2020, the transaction price includes the upfront payment, success fees, expense reimbursement, and milestones earned to date, which are allocated in their entirety to the single performance obligation. None of the future clinical or regulatory milestones have been included in the transaction price, as all milestone amounts were subject to the revenue constraint. As part of the constraint evaluation, we considered numerous factors, including the fact that the receipt of milestones is outside of our control and contingent upon success in future clinical trials and the licensees’ efforts. Any consideration related to sales-based milestones, including royalties, will be recognized when the related sales occur as they were determined to relate predominantly to the IP license granted to BMS and therefore have also been excluded from the transaction price. We will re-evaluate the transaction price in each reporting period and as uncertain events are resolved or other changes in circumstances occur.
Milestones achieved through June 30, 2020 under the BMS Agreement are as follows:
Anti-PD-1
(CC-90006)
Milestone EventAmountQuarter Recognized
Completion of first in vivo toxicology studies using GLPs
$0.5MQ2'16
Phase 1 clinical trial initiation$1.0MQ4'16
Revenue from future contingent milestone payments will be recognized when it is more likely than not that the revenue will not be reversed in future periods. Cash is generally received within 30 days of milestone achievement.
There was no revenue recognized under this agreement during the three and six months ended June 30, 2020 and 2019.
10


5. Notes Payable
On December 24, 2014, we entered into a Loan and Security Agreement, as amended from time to time, the Loan Agreement, with a bank and a financial institution whereby we may borrow up to $15.0 million in three separate draws of $5.0 million each. The Term A Loans, for an aggregate of $5.0 million, were drawn on December 24, 2014 with a fixed interest rate of 6.97%.
In January 2016, the Loan Agreement was amended to combine Term B Loans and Term C Loans for a total of $10.0 million available for draw through December 31, 2016 and delay the beginning of our Term A Loans’ principal repayments from February 1, 2016 until February 1, 2017. The Term B Loans and Term C Loans became available for draw on July 1, 2016. In December 2016, we further amended the Loan Agreement to (i) allow for the Term B Loans and Term C Loans to be drawn on December 30, 2016, (ii) delay principal repayments of all Term Loans until February 1, 2018 and (iii) amend the interest rate for each Term Loan. The Term B Loans and the Term C Loans were drawn on December 30, 2016, and Term A, B and C Loans are now collectively referred to as the Term Loans. Principal repayments began in February 2018, and were paid in full, without penalty or premium on January 1, 2020.
The costs incurred to issue the Term Loans were deferred and were included in the discount to the carrying value of the Term Loans in the accompanying balance sheet. The Term Loans also included a final payment fee of $0.8 million due at the earlier of prepayment or the maturity date of the Term Loans. The deferred costs and the final payment fee were amortized to interest expense over the expected term of the Term A Loans using the effective interest method.
6. Fair Value Measurements and Available for Sale Investments
Fair Value Measurements
Our financial instruments consist principally of cash, cash equivalents, restricted cash, short-term and long-term investments, receivables, accounts payable, and notes payable. Certain of our financial assets and liabilities have been recorded at fair value in the consolidated balance sheet in accordance with the accounting standards for fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. Accounting guidance also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:
Level 1 - Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 - Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted 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 related assets or liabilities; and
Level 3 - Unobservable inputs that are supported by little or no market activities, therefore requiring an entity to develop its own assumptions.
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Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table summarizes our assets and liabilities that require fair value measurements on a recurring basis and their respective input levels based on the fair value hierarchy:
Fair Value Measurements at End of Period Using:
(in thousands)
Fair
Value
Quoted Market
Prices for
Identical Assets
(Level 1)
Significant
Other Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
At June 30, 2020
Money market funds(1)
$213,898  $213,898  $  $  
Mutual funds(1)
7,633  7,633      
U.S. Treasury securities(2)
103,459  103,459      
Certificates of deposit(2)
4,724    4,724    
Agency securities(2)
16,658    16,658    
Commercial and corporate obligations(2)
46,186    46,186    
At December 31, 2019
Money market funds(1)
$162,928  $162,928  $  $  
Mutual funds(1)
7,619  7,619      
U.S. Treasury securities(2)
96,434  96,434      
Certificates of deposit(2)
5,428    5,428    
 Agency securities(2)
33,623    33,623    
Commercial and corporate obligations(2)
122,030    122,030    
(1) Included in cash and cash equivalents or restricted cash in the accompanying consolidated balance sheets.
(2) Included in short-term or long-term investments in the accompanying consolidated balance sheets depending on the respective maturity date.
The following methods and assumptions were used to estimate the fair value of our financial instruments for which it is practicable to estimate that value:
Marketable Securities. For fair values determined by Level 1 inputs, which utilize quoted prices in active markets for identical assets, the level of judgment required to estimate fair value is relatively low. For fair values determined by Level 2 inputs, which utilize quoted prices in less active markets for similar assets, the level of judgment required to estimate fair value is also considered relatively low.
Fair Value of Other Financial Instruments
The fair value of our other financial instruments estimated as of June 30, 2020 and December 31, 2019 are presented below:
June 30, 2020December 31, 2019
(in thousands)
Carrying
Amount
Fair
Value
Carrying
Amount
Fair
Value
Notes payable$  $  $1,375  $1,365  
The following methods and assumptions were used to estimate the fair value of our notes payable:
Notes Payable—We use the income approach to value the aforementioned debt instrument. We use a present value calculation to discount principal and interest payments and the final maturity payment on these liabilities using a discounted cash flow model based on observable inputs. We discount these debt instruments based on what the current market rates would offer us as of the reporting date. Based on the assumptions used to value these liabilities at fair value, these debt instruments are categorized as Level 2 in the fair value hierarchy.
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 The carrying amounts of certain of our financial instruments, including cash and cash equivalents, accounts payable, and accrued expenses approximate fair value due to their short-term nature.
Available for Sale Investments
We invest our excess cash in agency securities, debt instruments of financial institutions and corporations, commercial obligations, and U.S. Treasury securities, which we classify as available-for-sale investments. These investments are carried at fair value and are included in the tables above. The aggregate market value, cost basis, and gross unrealized gains and losses of available-for-sale investments by security type, classified in cash equivalents, short-term and long-term investments as of June 30, 2020 are as follows:
(in thousands)Amortized
Cost
 Gross
Unrealized Gains
 Gross
Unrealized Losses
 Total
Fair Value
Agency securities(1)
$16,607  $52  $(1) $16,658  
Certificates of deposit(2)
4,683  41    4,724  
Commercial and corporate obligations(3)
45,961  225    46,186  
U.S. Treasury securities(4)
102,816  643    103,459  
     Total available-for-sale investments$170,067  $961  $(1) $171,027  
(1) Of our outstanding agency securities, $10.1 million have maturity dates of less than one year and $6.5 million have a maturity date of between one to two years as of June 30, 2020.
(2) All of our outstanding certificates of deposit have a maturity date of less than one year as of June 30, 2020.
(3) All of our outstanding commercial and corporate obligations have maturity dates of less than one year as of June 30, 2020.
(4) Of our outstanding U.S. Treasury securities, $95.7 million have maturity dates of less than one year and $7.8 million have a maturity date of between one to two years as of June 30, 2020.
The following tables present gross unrealized losses and fair values for those investments that were in an unrealized loss position as of June 30, 2020 and December 31, 2019, aggregated by investment category and the length of time that individual securities have been in a continuous loss position:
June 30, 2020
Less than 12 Months12 Months or GreaterTotal
(in thousands)
Fair Value
Gross
Unrealized Losses
Fair Value
Gross
Unrealized Losses
Fair Value
Gross
Unrealized Losses
Agency securities$3,630  $(1) $  $  $3,630  $(1) 
December 31, 2019
Less than 12 Months12 Months or GreaterTotal
(in thousands)
Fair Value
Gross
Unrealized Losses
Fair Value
Gross
Unrealized Losses
Fair Value
Gross
Unrealized Losses
Commercial and corporate obligations$5,986  $(4) $  $  $5,986  $(4) 
US Treasury Securities17,608  (2)     17,608  (2) 
Total
$23,594  $(6) $  $  $23,594  $(6) 
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7. Stockholders’ Equity
Common Stock
Of the 500,000,000 shares of common stock authorized, 27,287,338 shares were issued and outstanding as of June 30, 2020. Common stock reserved for future issuance upon the exercise, issuance or conversion of the respective equity instruments at June 30, 2020 are as follows:
 
Issued and Outstanding:
Stock options2,697,996  
Shares Reserved For:
2017 Equity Incentive Plan
3,277,042  
2017 Employee Stock Purchase Plan997,682  
Total6,972,720  
8. Equity Incentive Plans
2017 Equity Incentive Plan
On January 12, 2017, our board of directors and stockholders approved and adopted the 2017 Equity Incentive Plan (the “2017 Plan”). The 2017 Plan became effective upon the execution and delivery of the underwriting agreement for our initial public offering on January 26, 2017, and replaced our existing 2006 Equity Incentive Plan. Under the 2017 Plan we may grant stock options, stock appreciation rights, restricted stock, restricted stock units and other awards to individuals who are then our employees, officers, directors or consultants. In addition, the number of shares of stock available for issuance under the 2017 Plan will be automatically increased each January 1, beginning on January 1, 2018, by 4% of the aggregate number of outstanding shares of our common stock as of the immediately preceding December 31 or such lesser number as determined by our board of directors. The 2017 Plan automatically increased by 1,090,203 shares as of January 1, 2020.
Employee Stock Purchase Plan
On January 12, 2017, our board of directors and stockholders approved and adopted the 2017 Employee Stock Purchase Plan or the ESPP. The ESPP became effective upon the execution and delivery of the underwriting agreement for our initial public offering on January 26, 2017. In addition, the number shares of stock available for issuance under the ESPP will be automatically increased each January 1, beginning on January 1, 2018, by 1% of the aggregate number of outstanding shares of our common stock as of the immediately preceding December 31 or such lesser number as determined by our board of directors. The ESPP automatically increased by 272,550 shares as of January 1, 2020.
Stock Options
Stock options granted to employees and non-employees generally vest over a four-year period while stock options granted to directors vest over a one year period. Each have a maximum term of ten years from the date of grant, subject to earlier cancellation prior to vesting upon cessation of service to us. A summary of the activity related to stock option awards during the six months ended June 30, 2020 is as follows:
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Shares
Subject to
Options
Weighted-Average
Exercise
Price per
Share
Weighted-Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value (in
thousands)
Outstanding at January 1, 20203,039,880  $29.40  
Granted142,650  $16.28  
Exercises(32,256) $3.31  
Forfeitures and cancellations(452,278) $37.79  
Outstanding at June 30, 20202,697,996  $27.61  7.12$19,517  
Exercisable at June 30, 20201,365,178  $