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, 2022
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
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |||||||
(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 class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
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 | ☐ | |||||||||||||||||
| ☒ | 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 Act). Yes ☐ No ☒
As of November 4, 2022, there were 28,431,632 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)
(unaudited)
| September 30, 2022 | December 31, 2021 | ||||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Receivables from collaborative partners | |||||||||||
| Short-term investments | |||||||||||
| Prepaid expenses and other current assets | |||||||||||
| Total current assets | |||||||||||
| Property and equipment, net | |||||||||||
| Operating lease right-of-use assets | |||||||||||
| Long-term investments | |||||||||||
| Other long-term assets | |||||||||||
| Total assets | $ | $ | |||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | $ | |||||||||
| Accrued expenses | |||||||||||
| Current portion of operating lease liability | |||||||||||
| Total current liabilities | |||||||||||
| Liability related to sale of future royalties | |||||||||||
| Operating lease liability, net of current portion | |||||||||||
| Stockholders’ equity: | |||||||||||
Preferred stock, $ | |||||||||||
Common stock, $ | |||||||||||
| Additional paid in capital | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Accumulated deficit | ( | ( | |||||||||
| Total stockholders’ equity | |||||||||||
| Total liabilities and stockholders’ equity | $ | $ | |||||||||
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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| $ | $ | $ | $ | ||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Research and development | |||||||||||||||||||||||
| General and administrative | |||||||||||||||||||||||
| Total operating expenses | |||||||||||||||||||||||
| Loss from operations | ( | ( | ( | ( | |||||||||||||||||||
| Other income (expense), net: | |||||||||||||||||||||||
| Interest income | |||||||||||||||||||||||
| Non-cash interest expense for the sale of future royalties | ( | ( | |||||||||||||||||||||
| Other income, net | |||||||||||||||||||||||
| Total other income (expense), net | ( | ( | |||||||||||||||||||||
| Net loss | ( | ( | ( | ( | |||||||||||||||||||
| Unrealized loss on available for sale securities | ( | ( | ( | ( | |||||||||||||||||||
| Comprehensive loss | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Net loss per common share: | |||||||||||||||||||||||
| Basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||||||||
| Weighted-average number of shares outstanding: | |||||||||||||||||||||||
| Basic and diluted | |||||||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
2
AnaptysBio, Inc.
Consolidated Statement of Stockholders’ Equity
(in thousands)
(unaudited)
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Issuance of common stock from exercises of options and employee stock purchase plan | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Comprehensive loss, net | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance, March 31, 2022 | ( | ( | |||||||||||||||||||||||||||||||||
| Issuance of common stock from exercises of options and employee stock purchase plan | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Comprehensive loss, net | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance, June 30, 2022 | ( | ( | |||||||||||||||||||||||||||||||||
| Issuance of common stock from exercises of options and employee stock purchase plan | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Comprehensive loss, net | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance, September 30, 2022 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
3
AnaptysBio, Inc.
Consolidated Statement of Stockholders’ Equity
(in thousands)
(unaudited)
| Common Stock | Additional Paid-in Capital | Accumulated Other Comprehensive Loss | Accumulated Deficit | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
| Shares issued under employee stock plans | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Comprehensive loss, net | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance, March 31, 2021 | ( | ( | |||||||||||||||||||||||||||||||||
| Shares issued under employee stock plans | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Comprehensive loss, net | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance, June 30, 2021 | ( | ( | |||||||||||||||||||||||||||||||||
| Shares issued under employee stock plans | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
| Comprehensive loss, net | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Net loss | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Balance, September 30, 2021 | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||||||||
See accompanying notes to unaudited consolidated financial statements.
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AnaptysBio, Inc.
Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
| Nine Months Ended September 30, | |||||||||||
| 2022 | 2021 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | |||||||||||
| Net loss | $ | ( | $ | ( | |||||||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Stock-based compensation | |||||||||||
| Accretion/amortization of investments, net | ( | ||||||||||
Amortization of right-of-use assets – operating | |||||||||||
| Non-cash interest expense | |||||||||||
| Gain on disposal of property and equipment | ( | ||||||||||
| Changes in operating assets and liabilities: | |||||||||||
| Receivables from collaborative partners | ( | ( | |||||||||
| Prepaid expenses and other assets | ( | ( | |||||||||
| Accounts payable and other liabilities | |||||||||||
| Operating lease liabilities | ( | ( | |||||||||
| Net cash used in operating activities | ( | ( | |||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | |||||||||||
| Purchases of investments | ( | ( | |||||||||
| Sales and maturities of investments | |||||||||||
| Proceeds from the sale of property and equipment | |||||||||||
| Purchases of property and equipment | ( | ( | |||||||||
| Net cash (used in) provided by investing activities | ( | ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | |||||||||||
| Proceeds from issuance of common stock | |||||||||||
| Proceeds from the sale of future royalties | |||||||||||
| Repayment of liability for sale of future royalties | ( | ||||||||||
| Payments for debt issuance costs | ( | ||||||||||
| Net cash provided by financing activities | |||||||||||
| Net (decrease) increase in cash and cash equivalents | ( | ||||||||||
| Cash, cash equivalents and restricted cash, beginning of period | |||||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | $ | |||||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | |||||||||||
| Non-cash investing and financing activities: | |||||||||||
| Amounts accrued for property and equipment | $ | $ | |||||||||
| Amounts accrued for issuance costs related to the sale of future royalties | $ | $ | |||||||||
| Receivable related to issuance of common stock, upon exercise of stock options | $ | $ | |||||||||
| Leased assets obtained in exchange for operating lease liabilities | $ | $ | |||||||||
See accompanying notes to unaudited consolidated financial statements.
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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 focused on delivering innovative immunology therapeutics. We are developing immune cell modulators, including two checkpoint agonists in clinical-stage development, for autoimmune and inflammatory disease: rosnilimab, our anti-PD-1 agonist program, previously referred to as ANB030, which is currently in a Phase 2 clinical trial for the treatment of moderate-to-severe alopecia areata; and ANB032, our anti-BTLA agonist program. In addition, we are developing imsidolimab, our anti-IL-36R antibody, which is currently in a Phase 3 clinical trial for the treatment of generalized pustular psoriasis, or GPP. We also have additional preclinical programs and discovery research of potentially innovative immunology therapeutics, including ANB033, an anti-CD122 antagonist antibody for the treatment of inflammatory diseases. We have also developed multiple therapeutic antibodies in an immuno-oncology collaboration with GSK, including an anti-PD-1 antagonist antibody (JEMPERLI (dostarlimab-gxly)), an anti-TIM-3 antagonist antibody (cobolimab, GSK4069889) and an anti-LAG-3 antagonist antibody (GSK4074386). We currently generate revenue from milestones and royalties achieved under our immuno-oncology collaboration with GSK. Our antibody pipeline has been developed using our proprietary somatic hypermutation, or SHM platform, which uses in vitro SHM for antibody discovery and is designed to replicate key features of the human immune system to overcome the limitations of competing antibody discovery technologies.
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 stock, royalty monetizations, 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. Our management believes our currently available resources will provide sufficient funds to enable us to meet our operating plans for at least the next twelve months from the issuance of our consolidated financial statements. 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 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.
Use of Estimates
The preparation of the accompanying consolidated financial statements in conformity with U.S. GAAP requires our 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
6
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 September 30, | Nine Months Ended September 30, | ||||||||||||||||||||||
| (in thousands) | 2022 | 2021 | 2022 | 2021 | |||||||||||||||||||
| Options to purchase common stock | |||||||||||||||||||||||
3. Balance Sheet Accounts and Supplemental Disclosures
Property and Equipment, net
Property and equipment, net consist of the following:
| (in thousands) | September 30, 2022 | December 31, 2021 | |||||||||
| Laboratory equipment | $ | $ | |||||||||
| Office furniture and equipment | |||||||||||
| Leasehold improvements | |||||||||||
| Property and equipment, gross | |||||||||||
| Less: accumulated depreciation and amortization | ( | ( | |||||||||
| Total property and equipment, net | $ | $ | |||||||||
Accrued Expenses
Accrued expenses consist of the following:
| (in thousands) | September 30, 2022 | December 31, 2021 | |||||||||
| Accrued compensation and related expenses | $ | $ | |||||||||
| Accrued professional fees | |||||||||||
| Accrued research, development and manufacturing expenses | |||||||||||
| Other | |||||||||||
| Total accrued expenses | $ | $ | |||||||||
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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. (“Tesaro”), an oncology-focused biopharmaceutical company now a part of GlaxoSmithKline (Tesaro and GlaxoSmithKline are hereinafter referred to, collectively, as “GSK”). Under the terms of the GSK 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 GSK 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, Amendment No. 1 to the GSK Agreement was agreed by both parties to add an additional antibody discovery program for an upfront license fee of $2.0 million. Currently, under the GSK Agreement, GSK is developing JEMPERLI (dostarlimab), an anti-PD-1 antagonist antibody, as a monotherapy and in combination with additional therapies, for various solid tumor indications. In addition, under the collaboration, GSK is developing dostarlimab in combination with two other development programs form the GSK Agreement: cobolimab, an anti-TIM-3 antibody, and GSK40974386, an anti-LAG-3 antibody, for various solid tumor indications.
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 4 -8 % royalties related to worldwide net sales of products developed under the collaboration. Unless earlier terminated by either party upon specified circumstances, the GSK Agreement will terminate, with respect to each specific developed product, upon the later of the 12 th 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 GSK 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 February 2016, Amendment No. 2 to the GSK Agreement was agreed by both parties to define the effective dates of the development programs of the GSK Agreement. 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 discovery milestones were recognized was extended through December 31, 2016 and have since been recognized in full.
We assessed these arrangements 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) research and development (“R&D”) services, and (3) joint steering committee meetings. We considered the research and discovery capabilities of GSK for these specific programs and the fact that the discovery and optimization of these antibodies is proprietary and could not, at the time of 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 joint steering committee participation would not have been provided without the R&D services and GSK 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.
8
On October 23, 2020, Amendment No. 3 to the GSK Agreement (the “Amendment”) was agreed to by both parties to permit GSK to conduct development and commercialization in combination with any third-party molecules of Zejula, an oral, once-daily poly (ADP-ribose) polymerase (PARP) inhibitor. Under the Amendment, we were granted increased royalties upon sales of JEMPERLI, equal to 8 % of Net Sales (as defined in the GSK Agreement) below $1.0 billion and from 12 % up to 25 % of Net Sales above $1.0 billion. The Amendment also provided for a one-time, non-refundable cash payment of $60.0 million that we received and recognized as revenue in the fourth quarter of 2020. The $1.1 billion in cash milestone payments due under the GSK Agreement remain unchanged. Additionally, under the terms of the Amendment, GSK has agreed to certain diligence commitments with respect to the future development of JEMPERLI, and the parties have agreed to review such commitments under regular joint review committee meetings going forward.
We assessed this Amendment in accordance with ASC 606 and concluded the Amendment was a contract modification to the GSK Agreement. Based on our assessment, we identified the terms of the Amendment to be interrelated to the GSK Agreement’s single performance obligation, noting completion and delivery of terms under the Amendment were satisfied by both parties with the execution of the Amendment.
As of September 30, 2022, the transaction price for the GSK Agreement and Amendment includes the upfront payment, research reimbursement revenue, one-time payment associated with the Amendment, and milestones and royalties earned to date, which are allocated in their entirety to the single performance obligation.
We earned and recognized $1.3 million and $3.5 million in royalty revenue during the three and nine months ended September 30, 2022 related to GSK’s net sales of Zejula and JEMPERLI during the period based on estimates of GSK’s sales historical experience. Of the royalty revenue recognized during the three and nine months ended September 30, 2022, $0.3 million and $1.2 million is JEMPERLI non-cash revenue related to the JEMPERLI Royalty Monetization Agreement, see Note 5. Of the royalty revenue recognized during both the three and nine months ended September 30, 2022, $0.7 0.9 million and $2.2 million in royalty revenue during the three and nine months ended September 30, 2021 related to GSK’s net sales of Zejula and JEMPERLI during the period. All royalty revenue related to Zejula global net sales starting July 2022 will be paid directly to a wholly-owned subsidiary of DRI Healthcare Trust pursuant to the Zejula Royalty Monetization Agreement, see Note 5.
9
Milestones under the GSK Agreement are as follows:
Anti-PD-1 (JEMPERLI/Dostarlimab) | Anti-TIM-3 (GSK4069889A/Cobolimab) | Anti-LAG-3 (GSK40974386) | ||||||||||||||||||||||||
| Milestone Event | Amount | Quarter Recognized | Amount | Quarter Recognized | Amount | Quarter Recognized | ||||||||||||||||||||
Initiated in vivo toxicology studies using good laboratory practices (GLPs) | $ | Q2'15 | $ | Q4'15 | $ | Q3'16 | ||||||||||||||||||||
| IND clearance from the FDA | $ | Q1'16 | $ | Q2'16 | $ | Q2'17 | ||||||||||||||||||||
| Phase 2 clinical trial initiation | $ | Q2'17 | $ | Q4'17 | $ | Q4'19 | ||||||||||||||||||||
| Phase 3 clinical trial initiation - first indication | $ | Q3'18 | $ | — | $ | — | ||||||||||||||||||||
| Phase 3 clinical trial initiation - second indication | $ | Q2'19 | $ | — | $ | — | ||||||||||||||||||||
Filing of the first BLA(1) - first indication | $ | Q1'20 | $ | — | $ | — | ||||||||||||||||||||
Filing of the first MAA(2) - first indication | $ | Q1'20 | $ | — | $ | — | ||||||||||||||||||||
Filing of the first BLA - second indication | $ | Q1'21 | $ | — | $ | — | ||||||||||||||||||||
| First BLA approval - first indication | $ | Q2'21 | $ | — | $ | — | ||||||||||||||||||||
First MAA approval - first indication | $ | Q2'21 | $ | — | $ | — | ||||||||||||||||||||
| First BLA approval - second indication | $ | Q3'21 | $ | — | $ | — | ||||||||||||||||||||
Filing of the first MAA - second indication(3) | $ | — | $ | — | $ | — | ||||||||||||||||||||
First MAA approval - second indication(3) | $ | — | $ | — | $ | — | ||||||||||||||||||||
First commercial sales milestone(3) | $ | — | $ | — | $ | — | ||||||||||||||||||||
Second commercial sales milestone(3) | $ | — | $ | — | $ | — | ||||||||||||||||||||
Third commercial sales milestone(3) | $ | — | $ | — | $ | — | ||||||||||||||||||||
| Fourth commercial sales milestone | $ | — | $ | — | $ | — | ||||||||||||||||||||
| Milestones recognized through September 30, 2022 | $ | — | $ | — | $ | — | ||||||||||||||||||||
| Milestones that may be recognized in the future | $ | — | $ | — | $ | — | ||||||||||||||||||||
(1)Biologics License Application (“BLA”)
(2)Marketing Authorization Application (“MAA”)
We recognized $1.3 million and $3.5 million in revenue under the GSK Agreement during the three and nine months ended September 30, 2022, respectively, and $20.9 million and $62.2 million during the three and nine months ended September 30, 2021, 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 (Celgene and Bristol-Myers Squibb are hereinafter referred to, collectively, as “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.
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The BMS 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.
There was no
5. Sale of Future Royalties
JEMPERLI Royalty Monetization Agreement
In October 2021, we signed a royalty monetization agreement (“JEMPERLI Royalty Monetization Agreement”) with Sagard Healthcare Royalty Partners, LP (“Sagard”). Under the terms of the JEMPERLI Royalty Monetization Agreement, we received $250.0 million in exchange for royalties and milestones payable to us under our GSK collaboration on annual global net sales of JEMPERLI below $1.0 billion starting in October 2021. The aggregate JEMPERLI royalties and milestones to be received by Sagard under the JEMPERLI Royalty Monetization Agreement is capped at certain fixed multiples of the upfront payment based on time. Once Sagard receives an aggregate amount of either $312.5 million (125 % of the upfront) by the end of 2026, or $337.5 million (135 % of the upfront) during 2027, or $412.5 million (165 % of the upfront) at any time after 2027, the JEMPERLI Royalty Monetization Agreement will expire resulting in us regaining all subsequent JEMPERLI royalties and milestones. As of September 30, 2022, Sagard has received a total of $1.1 million in royalties and milestones.
The JEMPERLI Royalty Monetization Agreement includes a call option pursuant to which at any time after December 1, 2024, we may reacquire our interest in the specified royalties by paying Sagard (in cash) a specified amount described as (a) in the case of a Reacquisition Date that falls within the period from (but excluding) December 1, 2024 to (and including) December 31, 2026, the greater of (i) $312.5 million minus the total Net Amount actually received by Purchaser prior to such Reacquisition Date, and (ii) an amount that, when paid to Sagard on such Reacquisition Date, will generate an internal rate of return (“IRR”) for Sagard of 9.0 % over the Relevant Period; (b) in the case of a Reacquisition Date that falls within the period from (and including) January 1, 2027 to (and including) December 31, 2027, the greater of (i) $337.5 million minus the total Net Amount actually received by Purchaser prior to such Reacquisition Date and (ii) an amount that, when paid to Sagard on such Reacquisition Date, will generate an IRR for Sagard of 10 % over the Relevant Period; and (c) in the case of a Reacquisition Date that occurs on or after January 1, 2028, the greater of (i) $412.5 million minus the total Net Amount actually received by Purchaser prior to such Reacquisition Date and (ii) an amount that, when paid to Sagard on such Reacquisition Date, will generate an IRR for Sagard of 10 % over the Relevant Period.
The proceeds received from Sagard of $250.0 0.4 million, which will be amortized over the estimated life of the arrangement using the effective interest rate method. Royalty and milestone revenue will be recognized as earned on net sales of JEMPERLI, and we will record the royalty payments to Sagard as a reduction of the liability when paid. As such payments are made to Sagard, the balance of the liability will be effectively repaid over the life of the JEMPERLI Royalty Monetization Agreement.
We estimate the effective interest rate used to record non-cash interest expense under the JEMPERLI Royalty Monetization Agreement based on the estimate of future royalty payments to be received by Sagard. As of September 30, 2022, the estimated effective rate under the agreement was 9.1 %. Over the life of the arrangement, the actual effective interest rate will be affected by the amount and the timing of the royalty payments received by Sagard and changes in our forecasted royalties. At each reporting date, we will reassess our estimate of total future royalty payments to be received and if such payments are materially different than our original estimates, we will prospectively adjust the imputed interest rate and the related amortization of the royalty obligation.
We recognized JEMPERLI non-cash royalty revenue of approximately $0.3 million and $1.2 million for the three and nine months ended September 30, 2022, respectively, and non-cash interest expense of approximately $5.9 million and $16.7 million for the three and nine months ended September 30, 2022, respectively. The interest and amortization of issuance costs is reflected as non-cash interest expense for the sale of future royalties in the Consolidated Statements of Operations.
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The following table shows the activity within the liability account for the nine months ended September 30, 2022:
| (in thousands) | September 30, 2022 | |||||||
| Liability related to sale of future JEMPERLI royalties and milestones - balance at 12/31/2021 | $ | |||||||
| Issuance costs related to the sale of future royalties | ( | |||||||
| Amortization of issuance costs | ||||||||
| Royalty and milestone payments to Sagard | ( | |||||||
| Non-cash interest expense recognized | ||||||||
| Liability related to sale of future royalties and milestones - ending balance | $ | |||||||
Zejula Royalty Monetization Agreement
In October 2020, in connection with Amendment No. 3 to the GSK Agreement, GSK agreed, under the terms of a settlement agreement (the “GSK Settlement Agreement”), to pay us a royalty on all GSK net sales of Zejula starting January 1, 2021. Under the GSK Settlement Agreement, the royalty is paid at a rate of 1.0 % but is subject to reduction due to royalties paid to third parties, with a minimum royalty payable under the GSK Settlement Agreement of 0.5 % of global net sales of Zejula. The current effective royalty rate is 0.5 %.
In September 2022, we signed a purchase and sale agreement (the “Zejula Royalty Monetization Agreement”) with a wholly-owned subsidiary of DRI Healthcare Trust (“DRI”) to monetize all of our future royalties on global net sales of Zejula under the GSK Settlement Agreement. Under the terms of the Zejula Royalty Monetization Agreement, we received $35.0 million in exchange for all royalties payable by GSK to us under the GSK Settlement Agreement on global net sales of Zejula starting in July 2022 (the “Purchased Royalty Interest”). In addition, under the Zejula Royalty Monetization Agreement, we are entitled to receive an additional $10.0 million payment from DRI if Zejula is approved by the U.S. Food and Drug Administration for the treatment of endometrial cancer on or prior to December 31, 2025.
The proceeds received from DRI of $35.0 million were recorded as a liability, net of transaction costs of $0.2 million, which will be amortized over the estimated life of the arrangement using the effective interest rate method. Royalty revenue will be recognized as earned on net sales of Zejula, and we will record the royalty payments to DRI as a reduction of the liability when paid. As such payments are made to DRI, the balance of the liability will be effectively repaid over the life of the Zejula Royalty Monetization Agreement.
We estimate the effective interest rate used to record non-cash interest expense under the Zejula Royalty Monetization Agreement based on the estimate of future royalty payments to be received by DRI. As of September 30, 2022, the estimated effective rate under the agreement was 7.6 %. Over the life of the arrangement, the actual effective interest rate will be affected by the amount and the timing of the royalty payments received by DRI and the changes in our forecasted royalties. At each reporting date, we will reassess our estimate of total future royalty payments to be received and if such payments are materially different than our original estimates, we will prospectively adjust the imputed interest rate and the related amortization of the royalty obligation.
We recognized Zejula non-cash royalty revenue of approximately $0.7 0.2
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The following table shows the activity within the liability account for the nine months ended September 30, 2022:
| (in thousands) | September 30, 2022 | |||||||
| Liability related to sale of future Zejula royalties and milestones - balance at 12/31/2021 | $ | |||||||
| Proceeds from sale of future royalties | ||||||||
| Issuance costs related to the sale of future royalties | ( | |||||||
| Amortization of issuance costs | ||||||||
| Non-cash interest expense recognized | ||||||||
| Liability related to sale of future royalties and milestones - ending balance | $ | |||||||
6. Fair Value Measurements and Available for Sale Investments
Fair Value Measurements
Our financial instruments consist principally of cash, cash equivalents, short-term and long-term investments, receivables, and accounts 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 September 30, 2022 | |||||||||||||||||||||||
Money market funds(1) | $ | $ | $ | $ | |||||||||||||||||||
Mutual funds(1) | |||||||||||||||||||||||
U.S. Treasury securities(2) | |||||||||||||||||||||||
Certificates of deposit(2) | |||||||||||||||||||||||
Agency securities(2) | |||||||||||||||||||||||
Commercial and corporate obligations(1)(2) | |||||||||||||||||||||||
| At December 31, 2021 | |||||||||||||||||||||||
Money market funds(1) | $ | $ | $ | $ | |||||||||||||||||||
Mutual funds(1) | |||||||||||||||||||||||
U.S. Treasury securities(2) | |||||||||||||||||||||||
Certificates of deposit(2) | |||||||||||||||||||||||
Agency securities(2) | |||||||||||||||||||||||
Commercial and corporate obligations(2) | |||||||||||||||||||||||
(1) Included in cash and cash equivalents 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 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.
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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 September 30, 2022 are as follows:
| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Total Fair Value | |||||||||||||||||||
Agency securities(1) | $ | $ | $ | ( | $ | ||||||||||||||||||
Certificates of deposit(2) | ( | ||||||||||||||||||||||
Commercial and corporate obligations(3) | ( | ||||||||||||||||||||||
U.S. Treasury securities(4) | ( | ||||||||||||||||||||||
| Total available for sale investments | $ | $ | $ | ( | $ | ||||||||||||||||||
(1) Of our outstanding agency securities, $40.3 million have maturity dates of less than one year and $18.9 million have maturity dates between to two years as of September 30, 2022.
(2) Of our outstanding certificates of deposit, $2.1 million have maturity dates of less than one year and $0.7 million have a maturity date of between to two years as of September 30, 2022.
(3) Of our outstanding commercial and corporate obligations, $30.7 million have maturity dates of less than one year and $24.4 million have a maturity date of between to two years as of September 30, 2022.
(4) Of our outstanding U.S. Treasury securities, $311.3 million have maturity dates of less than one year and $103.5 million have a maturity date of between to two years as of September 30, 2022.
The aggregate market value, cost basis, and gross unrealized gains and losses of available for sale investments by security type, classified in short-term and long-term investments as of December 31, 2021 are as follows:
| (in thousands) | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Total Fair Value | |||||||||||||||||||
Agency securities(1) | $ | $ | $ | ( | $ | ||||||||||||||||||
Certificates of deposit(2) | ( | ||||||||||||||||||||||
Commercial and corporate obligations(3) | ( | ||||||||||||||||||||||
US Treasury securities(4) | ( | ||||||||||||||||||||||
| Total available for sale investments | $ | $ | $ | ( | $ | ||||||||||||||||||
(1) Of our outstanding agency securities, $1.0 million have maturity dates of less than one year and $4.8 million have a maturity date of between to two years as of December 31, 2021.
(2) Of our outstanding certificates of deposit, $1.3 million have a maturity date of less than one year and $2.5 million have a maturity date of between to two years as of December 31, 2021.
(3) Of our outstanding commercial and corporate obligations, $4.8 million have maturity dates of less than one year and $17.3 million have a maturity date of between to two years as of December 31, 2021.
(4) Of our outstanding U.S. Treasury securities, $45.3 million have maturity dates of less than one year and $42.5 million have a maturity date of between to two years as of December 31, 2021.
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| September 30, 2022 | |||||||||||||||||||||||||||||||||||
| Less than 12 Months | 12 Months or Greater | Total | |||||||||||||||||||||||||||||||||
| (in thousands) | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | Fair Value | Gross Unrealized Losses | |||||||||||||||||||||||||||||
| Agency securities | $ | $ | ( | $ | $ | $ | $ | ||||||||||||||||||||||||||||