ptgx_Current_Folio_10Q

Table of Contents

 

 

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 March 31, 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 No. 001‑37852


PROTAGONIST THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)


Delaware

    

98‑0505495

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

 

 

7707 Gateway Boulevard, Suite 140
Newark, California 94560‑1160

 

(510) 474‑0170

(Address, including zip code, of registrant’s principal executive offices)

 

(Telephone number, including area code, of registrant’s principal executive offices)

 


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

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

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

 

 

 

 

 

Large accelerated filer

 

Accelerated filer

 

 

 

 

Non-accelerated filer

 

Smaller reporting company

 

 

 

Emerging growth company

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the Exchange Act of 1934).     Yes  ◻    No  ☒

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

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 $0.00001

PTGX

The Nasdaq Stock Market, LLC

 

As of April 30, 2019, there were 23,396,033 shares of the registrant’s Common Stock, par value $0.00001 per share, outstanding.

 

 

 


 

Table of Contents

PROTAGONIST THERAPEUTICS, INC.

FORM 10‑Q

TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

PART I 

FINANCIAL INFORMATION

 

 

 

 

Item 1. 

Condensed Consolidated Financial Statements (unaudited)

 

 

Condensed Consolidated Balance Sheets

1

 

Condensed Consolidated Statements of Operations

2

 

Condensed Consolidated Statements of Comprehensive Loss

3

 

Condensed Consolidated Statements of Stockholders’ Equity

4

 

Condensed Consolidated Statements of Cash Flows

5

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2. 

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

26

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

36

Item 4. 

Controls and Procedures

37

 

 

 

PART II 

OTHER INFORMATION

 

 

 

 

Item 1. 

Legal Proceedings

37

Item 1A. 

Risk Factors

37

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

83

Item 3. 

Defaults Upon Senior Securities

83

Item 4. 

Mine Safety Disclosure

83

Item 5. 

Other Information

84

Item 6. 

Exhibits

84

 

SIGNATURES

87

 

 

 

 


 

Table of Contents

PART I. – FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31,

 

    

2019

    

2018

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

70,077

 

$

82,233

Restricted cash - current

 

 

10

 

 

10

Available-for-sale securities

 

 

42,469

 

 

46,620

Receivable from collaboration partner and contract asset - related party

 

 

5,061

 

 

4,587

Research and development tax incentive receivable

 

 

1,876

 

 

1,429

Prepaid expenses and other current assets

 

 

3,502

 

 

2,624

Total current assets

 

 

122,995

 

 

137,503

Property and equipment, net

 

 

1,546

 

 

861

Restricted cash - noncurrent

 

 

450

 

 

450

Operating lease right-of-use asset

 

 

6,779

 

 

 —

Deferred tax asset

 

 

478

 

 

658

Total assets

 

$

132,248

 

$

139,472

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

  

 

 

Accounts payable

 

$

6,454

 

$

5,711

Payable to collaboration partner - related party

 

 

1,211

 

 

1,061

Accrued expenses and other payables

 

 

8,713

 

 

11,163

Operating lease liability - current

 

 

1,120

 

 

 —

Deferred revenue - related party

 

 

7,001

 

 

8,223

Total current liabilities

 

 

24,499

 

 

26,158

Operating lease liability - noncurrent

 

 

6,924

 

 

 —

Deferred rent

 

 

 —

 

 

799

Total liabilities

 

 

31,423

 

 

26,957

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Preferred stock, $0.00001 par value, 10,000,000 shares authorized; no shares issued and outstanding 

 

 

 —

 

 

Common stock, $0.00001 par value, 90,000,000 shares authorized; 23,392,534 and 23,187,219 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively

 

 

 —

 

 

Additional paid-in capital

 

 

255,591

 

 

253,222

Accumulated other comprehensive loss

 

 

(189)

 

 

(233)

Accumulated deficit

 

 

(154,577)

 

 

(140,474)

Total stockholders’ equity

 

 

100,825

 

 

112,515

Total liabilities and stockholders’ equity

 

$

132,248

 

$

139,472

 

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

1


 

Table of Contents

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2019

    

2018

 

 

 

 

 

 

 

License and collaboration revenue - related party

 

$

1,560

 

$

10,781

Operating expenses:

 

 

 

 

 

 

Research and development

 

 

12,444

 

 

15,368

General and administrative

 

 

3,764

 

 

3,642

Total operating expenses

 

 

16,208

 

 

19,010

Loss from operations

 

 

(14,648)

 

 

(8,229)

Interest income

 

 

728

 

 

568

Loss before income tax expense

 

 

(13,920)

 

 

(7,661)

Income tax expense

 

 

(183)

 

 

 —

Net loss

 

$

(14,103)

 

$

(7,661)

Net loss per share, basic and diluted

 

$

(0.58)

 

$

(0.36)

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

 

 

24,297,576

  

 

21,112,393

 

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

2


 

Table of Contents

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2019

    

2018

Net loss

 

$

(14,103)

 

$

(7,661)

Other comprehensive loss:

 

 

 

  

 

 

Gain (loss) on translation of foreign operations

 

 

15

 

 

(18)

Unrealized gain (loss) on available-for-sale securities

 

 

29

 

 

(48)

Comprehensive loss

 

$

(14,059)

 

$

(7,727)

 

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

3


 

Table of Contents

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(Unaudited)

(In thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

Total

 

 

Common

 

Paid-In

 

Comprehensive

 

Accumulated

 

Stockholders'

 

 

Stock

 

Capital

 

Loss

 

Deficit

 

Equity

 

  

Shares

  

Amount

  

 

 

  

 

 

  

 

 

  

 

 

Balance at December 31, 2018

 

23,187,219

  

$

 —

 

$

253,222

  

$

(233)

 

$

(140,474)

  

$

112,515

Stock-based compensation expense

 

 —

  

 

 

 

1,979

  

 

 

 

 —

  

 

1,979

Common stock issued under equity incentive and employee stock purchase plans

 

205,315

  

 

 

 

390

  

 

 

 

 —

  

 

390

Other comprehensive gain

 

 —

  

 

 

 

 —

  

 

44

 

 

 —

  

 

44

Net loss

 

 —

  

 

 

 

 —

  

 

 

 

(14,103)

  

 

(14,103)

Balance at March 31, 2019

 

23,392,534

  

$

 —

 

$

255,591

  

$

(189)

 

$

(154,577)

  

$

100,825

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

Total

 

 

Common

 

Paid-In

 

Comprehensive

 

Accumulated

 

Stockholders'

 

 

Stock

 

Capital

 

Loss

 

Deficit

 

Equity

 

  

Shares

  

Amount

  

 

 

  

 

 

  

 

 

  

 

 

Balance at December 31, 2017

 

21,088,306

  

$

 —

 

$

222,188

  

$

(6)

 

$

(101,550)

  

$

120,632

Stock-based compensation expense

 

 —

  

 

 

 

1,185

  

 

 

 

 —

  

 

1,185

Common stock issued under equity incentive and employee stock purchase plans

 

75,284

  

 

 

 

531

  

 

 

 

 —

  

 

531

Other comprehensive gain

 

 —

  

 

 

 

 —

  

 

(66)

 

 

 —

  

 

(66)

Net loss

 

 —

  

 

 

 

 —

  

 

 

 

(7,661)

  

 

(7,661)

Balance at March 31, 2018

 

21,163,590

  

$

 —

 

$

223,904

  

$

(72)

 

$

(109,211)

  

$

114,621

 

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

 

 

4


 

Table of Contents

PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands) 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2019

    

2018

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

  

 

 

  

Net loss

 

$

(14,103)

 

$

(7,661)

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

 

 

 

 

 

 

Stock-based compensation

 

 

1,979

 

 

1,185

Operating lease right-of-use asset amortization

 

 

459

 

 

 —

Change in deferred tax asset

 

 

180

 

 

 —

Depreciation and amortization

 

 

130

 

 

78

Net (accretion of discount) amortization of premium on available-for-sale securities

 

 

(94)

 

 

120

Changes in operating assets and liabilities:

 

 

 

 

 

 

Research and development tax incentive receivable

 

 

(441)

 

 

(606)

Receivable from collaboration partner - related party

 

 

(474)

 

 

(906)

Prepaid expenses and other assets

 

 

(406)

 

 

1,150

Accounts payable

 

 

696

 

 

21

Payable to collaboration partner - related party

 

 

150

 

 

379

Accrued expenses and other payables

 

 

(3,053)

 

 

974

Operating lease liability

 

 

(463)

 

 

 —

Deferred revenue - related party

 

 

(1,222)

 

 

(9,872)

Net cash used in operating activities

 

 

(16,662)

 

 

(15,138)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Purchase of available-for-sale securities

 

 

(21,726)

 

 

(25,636)

Proceeds from maturities of available-for-sale securities

 

 

26,000

 

 

4,000

Purchases of property and equipment, net

 

 

(166)

 

 

(208)

Net cash provided by (used in) investing activities

 

 

4,108

 

 

(21,844)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Proceeds from issuance of common stock upon exercise of stock options and purchases under employee stock purchase plan

 

 

390

 

 

530

Net cash provided by financing activities

 

 

390

 

 

530

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

 8

 

 

 —

Net decrease in cash, cash equivalents and restricted cash

 

 

(12,156)

 

 

(36,452)

Cash, cash equivalents and restricted cash, beginning of period

 

 

82,693

 

 

106,489

Cash, cash equivalents and restricted cash, end of period

 

$

70,537

 

$

70,037

SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND INVESTING INFORMATION:

 

 

 

 

 

 

Purchases of property and equipment in accounts payable and accrued liabilities

 

$

649

 

$

36

Tenant improvement allowance reimbursement

 

$

469

 

$

 —

 

 

 

 

 

 

 

 

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

 

 

5


 

Table of Contents

PROTAGONIST THERAPEUTICS, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Organization and Description of Business

Protagonist Therapeutics, Inc. (the “Company”) was incorporated in the state of Delaware on August 22, 2006 and is headquartered in Newark, California. The Company is a clinical-stage biopharmaceutical company with a proprietary technology platform that enables the discovery and development of novel constrained peptide-based drug candidates that address significant unmet medical needs. Protagonist Pty Limited (“Protagonist Australia”) is a wholly-owned subsidiary of the Company and is located in Brisbane, Queensland, Australia. Protagonist Australia was incorporated in Australia in September 2001. The Company became the parent of Protagonist Australia pursuant to a transaction in which all of the issued and outstanding capital stock of Protagonist Australia was exchanged for shares of the Company’s common stock and Series A preferred stock. The Company manages its operations as a single operating segment.

Liquidity

The Company has incurred net losses from operations since inception and has an accumulated deficit of $154.6 million as of March 31, 2019. The Company’s ultimate success depends on the outcome of its research and development and collaboration activities. The Company expects to incur additional losses in the future and anticipates the need to raise additional capital to continue to execute its long-range business plan. Through March 31, 2019, the Company has financed its operations primarily through private placements of redeemable convertible preferred stock, offerings of common stock and payments received under a license and collaboration agreement.

 

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”) and applicable rules and regulations of the SEC regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by GAAP have been condensed or omitted, and accordingly the consolidated balance sheet as of December 31, 2018 has been derived from the Company’s audited consolidated financial statements at that date but does not include all of the information required by GAAP for complete consolidated financial statements. These unaudited interim condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair statement of the Company’s consolidated financial information. The results of operations for the three months ended March 31, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019 or for any other interim period or for any other future year.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10‑K, filed with the SEC on March 12, 2019.

Principles of Consolidation

The accompanying unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. All intercompany transactions and balances have been eliminated upon consolidation.

6


 

Table of Contents

Use of Estimates 

The preparation of the condensed consolidated financial statements in conformity with GAAP requires management to make estimates, assumptions and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, accruals for research and development activities, stock-based compensation, income taxes, available-for-sale securities and leases.  Estimates related to revenue recognition include actual costs incurred versus total estimated budgeted cost of the Company’s deliverables to determine percentage of completion, and application of constraint in the determination of the transaction price under its license and collaboration agreements. Management bases these estimates on historical and anticipated results, trends, and various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to forecasted amounts and future events. Actual results may differ significantly from those estimates.

Concentrations of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist of cash, cash equivalents and available-for-sale securities. Substantially all of the Company’s cash is held by three financial institutions that management believes are of high credit quality. Such deposits may, at times, exceed federally insured limits. The primary focus of the Company’s investment strategy is to preserve capital and to meet liquidity requirements. The Company’s cash equivalents and available-for-sale securities are managed by external managers within the guidelines of the Company’s investment policy. The Company’s investment policy addresses the level of credit exposure by limiting concentration in any one corporate issuer and establishing a minimum allowable credit rating. To manage its credit risk exposure, the Company maintains its portfolio of cash equivalents and available-for-sale securities in fixed income securities denominated and payable in U.S. dollars. Permissible investments of fixed income securities include obligations of the U.S. government and its agencies, money market instruments including commercial paper and negotiable certificates of deposit, and highly rated corporate debt obligations and money market funds.

Cash Equivalents

Cash equivalents that are readily convertible to cash are stated at cost, which approximates fair value. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Restricted Cash

Restricted cash consists of cash balances primarily held as security in connection with a letter of credit related to the Company’s facility lease entered into in March 2017 and the Company’s corporate credit card.

Cash as Reported in Consolidated Statements of Cash Flows

Cash as reported in the condensed consolidated statements of cash flows includes the aggregate amounts of cash and cash equivalents and the restricted cash as presented on the consolidated balance sheets.

 

7


 

Table of Contents

Cash as reported in the condensed consolidated statements of cash flows consists of (in thousands):

 

 

 

 

 

 

 

 

 

March 31, 

 

    

2019

    

2018

Cash and cash equivalents

 

$

70,077

 

$

69,577

Restricted cash - current

 

 

10

 

 

10

Restricted cash - noncurrent

 

 

450

 

 

450

Cash balance in consolidated statements of cash flows

 

$

70,537

 

$

 70,037

 

Available-for-Sale Securities

All marketable securities have been classified as “available-for-sale” and are carried at estimated fair value as determined based upon quoted market prices or pricing models for similar securities. Management determines the appropriate classification of its marketable securities at the time of purchase and reevaluates such designation as of each balance sheet date. Short-term marketable securities have maturities greater than three months but no longer than 365 days as of the balance sheet date. Long-term marketable securities have maturities of 365 days or longer as of the balance sheet date. Unrealized gains and losses are excluded from earnings and are reported as a component of comprehensive loss. Realized gains and losses and declines in fair value judged to be other than temporary, if any, on available-for-sale securities are included in interest income. The cost of securities sold is based on the specific-identification method. Interest on marketable securities is included in interest income.

Leases

 

The Company adopted Accounting Standards Topic 842, Leases, (“ASC 842”) effective January 1, 2019. The Company determines if an arrangement is a lease at inception. Pursuant to ASC 842, operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities, and noncurrent operating lease liabilities on the consolidated balance sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. If the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. Lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

 

The Company records tenant improvement allowances as a reduction to the ROU asset with the impact of the decrease recognized prospectively over the remaining lease term. The leasehold improvements will be amortized over the shorter of their useful life or the remaining term of the lease.

 

Revenue Recognition

 

The Company follows Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“ASC 606”).  Under ASC 606, the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of ASC 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, the Company assesses the goods or services promised within each contract,  determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligations when (or as) the performance obligations are satisfied.

 

8


 

Table of Contents

The Company entered into a license and collaboration agreement that became effective upon the resolution of regulatory requirements during the third quarter of 2017 which is within the scope of ASC 606, under which it has licensed certain rights to its PTG‑200 product candidate to a third party. The terms of the arrangement include payment to the Company of non-refundable license fees, development and regulatory and commercial milestone payments, and royalties on net sales of licensed products. 

 

Licenses of intellectual property:  If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in an arrangement, the Company recognizes revenue from non-refundable, up-front fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. For licenses that are bundled with other promises, the Company utilizes judgement to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring proportional performance for purposes of recognizing revenue from non-refundable, up-front fees. The Company evaluates the measure of proportional performance each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

 

Milestone payments:  At the inception of each arrangement that includes development, regulatory or commercial milestone payments, the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price. ASC 606 suggests two alternatives to use when estimating the amount of variable consideration: the expected value method and the most likely amount method. Under the expected value method, an entity considers the sum of probability-weighted amounts in a range of possible consideration amounts. Under the most likely amount method, an entity considers the single most likely amount in a range of possible consideration amounts. Whichever method is used, it should be consistently applied throughout the life of the contract; however, it is not necessary for the Company to use the same approach for all contracts. The Company expects to use the most likely amount method for development and regulatory milestone payments. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis. The Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability or achievement of each such milestone and any related constraint, and if necessary, adjusts its estimates of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

Royalties:  For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

Up-front payments and fees are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until the Company performs its obligations under these arrangements. Amounts payable to the Company are recorded as accounts receivable when the Company’s right to consideration is unconditional. Amounts payable to the Company and not yet billed to the collaboration partner are recorded as contract assets. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.

Research and Development Costs

Research and development costs are expensed as incurred, unless there is an alternate future use in other research and development projects or otherwise. Research and development costs include salaries and benefits, stock-based compensation expense, laboratory supplies and facility-related overhead, outside contracted services including clinical trial costs, manufacturing and process development costs for both clinical and preclinical materials, research costs, development milestone payments under license and collaboration agreements, and other consulting services.

9


 

Table of Contents

The Company accrues for estimated costs of research and development activities conducted by third-party service providers, which include the conduct of pre-clinical studies and clinical trials, and contract manufacturing activities. The Company records the estimated costs of research and development activities based upon the estimated services provided but not yet invoiced and includes these costs in accrued expenses and other payables in the condensed consolidated balance sheets and within research and development expense in the condensed consolidated statements of operations. The Company accrues for these costs based on factors such as estimates of the work completed and in accordance with agreements established with its third-party service providers. As actual costs become known, the Company adjusts its accrued liabilities. The Company has not experienced any material differences between accrued liabilities and actual costs incurred. However, the status and timing of actual services performed, number of patients enrolled, and the rate of patient enrollment may vary from the Company’s estimates, resulting in adjustments to expense in future periods. Changes in these estimates that result in material changes to the Company’s accruals could materially affect the Company’s results of operations.

Research and Development Tax Incentive

The Company is eligible under the AusIndustry research and development tax incentive program to obtain a cash amount from the Australian Taxation Office. The tax incentive is available to the Company on the basis of specific criteria with which the Company must comply. Specifically, the Company must have annual turnover of less than AUD 20.0 million and cannot be controlled by income tax exempt entities. The research and development tax incentive is recognized as a reduction to research and development expense when the right to receive has been attained and funds are considered to be collectible. The tax incentive is denominated in Australian dollars and, therefore, the related receivable is remeasured into U.S. dollars as of each reporting date.

 

Net Loss per Share

 

Basic net loss per share is calculated by dividing the Company’s net loss by the weighted average number of shares of common stock and Exchange Warrants outstanding during the period, without consideration of potentially dilutive securities. In accordance with Accounting Standards Codification Topic 260, Earnings Per Share, the Exchange Warrants are included in the computation of basic net loss per share because the exercise price is negligible, and they are fully vested and exercisable after the original issuance date. Diluted net loss per share is the same as basic net loss per share for all periods presented since the effect of potentially dilutive securities is anti-dilutive given the net loss of the Company. See Note 9. Stockholder’s Equity for additional information regarding the Exchange Warrants.

 

Recently Adopted Accounting Pronouncements

In February 2016, the FASB issued Accounting Standards Update (“ASU”) No. 2016‑02, Leases (Topic 842). In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, which provides clarification to ASU 2016-02. These ASUs (collectively, the new lease standard) require an entity to recognize a lease liability and a ROU asset on the balance sheet for leases with lease terms of more than twelve months. Lessor accounting is largely unchanged, while lessees are no longer provided with a source of off-balance sheet financing. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842) - Targeted Improvements, which allows entities to elect an optional transition method where entities may continue to apply the existing lease guidance during the comparative periods and apply the new lease requirements through a cumulative effect adjustment in the period of adoption rather than in the earliest period presented. The Company adopted the new lease standard using the modified retrospective approach effective January 1, 2019 and elected the package of transitional practical expedients, such that, for leases existing prior to the adoption of ASC 842, the Company did not need to reassess whether contracts are leases, retained historical lease classification and historical initial direct costs classification. The Company did not elect the hindsight practical expedient to determine the lease term for existing leases. At January 1, 2019, the Company derecognized its deferred rent liability in the amount of $0.8 million, and recognized a ROU asset and related lease liability in the amount of $7.5 million and $8.3 million, respectively.

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation (Topic 718), Improvements to Nonemployee Share-Based Payment Accounting, which is intended to simplify the accounting for nonemployee share-based payment transactions by expanding the scope of Topic 718 to include share-based payment

10


 

Table of Contents

transactions for acquiring goods and services from nonemployees. The Company adopted this guidance prospectively as of January 1, 2019. The adoption of this guidance did not have a material impact on the Company’s financial position, results of operations or liquidity.

 

Recently Issued Accounting Pronouncements Not Yet Adopted as of March 31, 2019

In June 2016, the FASB issued ASU No. 2016‑13, Financial Instruments - Credit Losses (Topic 326), which is intended to provide financial statement users with more useful information about expected credit losses on financial assets held by a reporting entity at each reporting date. The new standard replaces the existing incurred loss impairment methodology with a methodology that requires consideration of a broader range of reasonable and supportable forward-looking information to estimate all expected credit losses. This guidance is effective for the fiscal years and interim periods within those years beginning after December 15, 2019 and early adoption is permitted for fiscal years and interim periods within those years beginning after December 15, 2018. The Company is currently evaluating the impact of this new guidance on its consolidated financial statements and disclosures. 

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820) – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements on fair value measurements and is intended to improve the effectiveness of disclosures, including the consideration of costs and benefits. The guidance is effective for the fiscal years and interim periods within those years beginning after January 1, 2020. Early adoption is permitted, and an entity is permitted to early adopt any removed or modified disclosures and delay adoption of additional disclosures until their effective date. The Company does not expect this new guidance to impact its consolidated financial statements and is currently evaluating the impact on its disclosures.

In November 2018, the FASB issued ASU No. 2018-18, Collaborative Arrangements (Topic 808): Clarifying the Interaction Between Topic 808 and Topic 606, which is intended to clarify the circumstances under which certain transactions in collaborative arrangements should be accounted for under the revenue recognition standard. Certain transactions between collaboration arrangement participants should be accounted for as revenue under ASC Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account. This guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2020. Early adoption is permitted. The Company is in the process of assessing the impact of this new guidance on its consolidated financial statements and disclosures.

 

 

Note 3. Collaboration Agreement

Agreement Terms

On May 26, 2017, the Company and Janssen Biotech, Inc., (“Janssen”), one of the Janssen Pharmaceutical Companies of Johnson & Johnson, entered into an exclusive license and collaboration agreement (the “Janssen License and Collaboration Agreement”) for the development, manufacture and commercialization of PTG‑200 worldwide for the treatment of Crohn’s disease ("CD") and ulcerative colitis ("UC"). Janssen is a related party to the Company as Johnson & Johnson Innovation - JJDC, Inc., a significant stockholder of the Company, and Janssen are both subsidiaries of Johnson & Johnson. PTG‑200 is the Company’s oral gut-restricted Interleukin 23 receptor (“IL‑23R”) antagonist drug candidate currently in development. The Janssen License and Collaboration Agreement became effective on July 13, 2017. Upon the effectiveness of the agreement, the Company received a non-refundable, upfront cash payment of $50.0 million from Janssen.

Under the Janssen License and Collaboration Agreement, the Company granted to Janssen an exclusive worldwide license to develop, manufacture and commercialize PTG‑200 and related IL‑23R compounds for all indications, including CD and UC. The Company was responsible, at its own expense, for the conduct of the Phase 1 clinical trial for PTG‑200, and Janssen is responsible for the conduct of Phase 2 clinical trials for PTG‑200 in CD, including filing the Investigational New Drug application (“IND”). All such clinical trials will be conducted in accordance with a mutually agreed upon clinical development plan and budget. Development costs for the Phase 2

11


 

Table of Contents

clinical trial will be shared between the parties on an 80%/20% basis, with Janssen assuming the larger share. Should Janssen elect to retain its license following completion of the Phase 2 clinical trial, it will be responsible, at its own expense, for the manufacture, continued development of, seeking regulatory approval for, and commercialization of PTG‑200 worldwide. The parties’ development activities under the Janssen License and Collaboration Agreement through the Phase 2 clinical trial will be overseen by a joint governance structure which will have equal representation by both parties unless both parties mutually agree to disband such structure or the Company has provided written notice to Janssen of its intention to disband and no longer participate in such structure.

The Company is eligible to receive a $25.0 million milestone payment upon Janssen’s filing of the IND. Following the conclusion of the planned Phase 2a portion of the Phase 2 clinical trial, if Janssen elects to maintain its license rights and continue the development of PTG-200 in the Phase 2b portion of such clinical trial (the “First Opt-in Election”), the Company would be eligible to receive a $125.0 million payment. Following the conclusion of the planned Phase 2b portion of the Phase 2 clinical trial, if Janssen elects again to maintain its license rights (the “Second Opt-in Election”), the Company would be eligible to receive a $200.0 million payment. In addition to the opt-in fees, the Company would be eligible to receive potential development, regulatory and sales milestone payments of up to an aggregate of $590.0 million, and tiered royalties paid as a percentage of Janssen’s worldwide net sales at rates ranging from ten to the mid-teens, with certain customary reductions under certain circumstances. If Janssen does not make either the First Opt-in Election or the Second Opt-in Election, the Janssen License and Collaboration Agreement will terminate. If Janssen does not make the Second Opt-in Election, or if at any time after the Second Opt-in Election, Janssen terminates the Janssen License and Collaboration Agreement, the Company would be obligated to pay Janssen a low single-digit royalty on worldwide net sales of PTG‑200. The Company would also have an option to provide up to 30% of the required U.S. details for PTG‑200 to prescribers, using its own sales force personnel, upon commercial launch in the United States. If such right is exercised by the Company, the Company’s detailing costs would be reimbursed by Janssen at a mutually agreed cost per primary detailing equivalent.

The Janssen License and Collaboration Agreement contains customary representations, warranties and covenants by the Company and Janssen and includes an obligation by the Company not to develop or commercialize other compounds which also target IL‑23R outside of the Janssen License and Collaboration Agreement until completion of the Phase 2b portion of the Phase 2 clinical trial. Each of the Company and Janssen is required to indemnify the other party against all losses and expenses related to breaches of its representations, warranties and covenants under the Janssen License and Collaboration Agreement.

The Janssen License and Collaboration Agreement remains in effect until the royalty obligations cease following patent and regulatory expiry, unless terminated earlier. Either the Company or Janssen may terminate the Janssen License and Collaboration Agreement for uncured material breach. Janssen retains the right to terminate the Janssen License and Collaboration Agreement for convenience and without cause on written notice of a certain period to the Company. Upon a termination of the Janssen License and Collaboration Agreement, all rights revert back to the Company, and in certain circumstances, if such termination occurs during ongoing clinical trials, Janssen would, if requested, provide certain financial and operational support to the Company for the completion of such trials.

Revenue Recognition

The Company identified the following material promises under the Janssen License and Collaboration Agreement: (1) the license related to PTG‑200, (2) the performance of development services, including regulatory support, during the Phase 1 clinical trial for PTG‑200 through the filing of the IND by Janssen, and (3) compound supply services for Phase 1 and Phase 2 activities. The Company considered that the license has standalone functionality and is capable of being distinct. However, the Company determined that the license was not distinct from the development and compound supply services within the context of the agreement because the development and compound supply services significantly increase the utility of the intellectual property.

Specifically, the Company’s development, manufacturing and commercialization license can only provide benefit to Janssen in combination with the Company’s development services in the Phase 1 study. The intellectual property (“IP”) related to the peptide technology platform, which is proprietary to the Company, is the foundation for the development activities related to the treatment for CD. The compound supply services are a necessary and integral part

12


 

Table of Contents

of the development services as they could only be conducted utilizing the outcomes of these services. Given the development services under the Janssen Collaboration Agreement are expected to involve significant further development of the initial IP, the Company has concluded that the development and compound supply services are not distinct from the license, and thus the license, development services and compound supply services are combined into a single performance obligation. The nature of the combined performance obligation is to provide development and compound supply services to Janssen under the arrangement.

The Company also evaluated whether the fees related to the First Opt-in Election and Second Opt-in Election are options with material rights. These two options include additional sublicense rights and patent rights transferred to Janssen upon exercising both of these options. The Company concluded that Janssen’s opt in rights are not options with material rights because the $50.0 million upfront payment to the Company was not negotiated to provide incremental discount for the future opt in payments at the end of Phase 2a and Phase 2b. The option to “opt in” provides Janssen with a license for IP that has been improved from the license initially granted for a term in the case of the opt in after completion Phase 2a and then a perpetual license in the case of “opt in” after completion of Phase 2b. Therefore, the First Opt-in Election and Second Opt-in Election options are not considered to be material rights. The option fees will be recognized as revenue when, and if, Janssen exercises its options because the Company has no further performance obligations at that point.

For revenue recognition purposes, the Company determined that the duration of the contract began on the effective date of July 13, 2017 and ends upon completion of Phase 2a activities. The contract duration is defined as the period in which parties to the contract have present enforceable rights and obligations. The Company analyzed the impact of Janssen terminating the agreement prior to the completion of Phase 2a and determined that there were significant economic penalties to Janssen for doing so. The Company believes that if Janssen terminates the agreement upon completion of Phase 2a, the forfeiture of the remaining license rights and payment of 50% of the remaining Phase 2 costs is not a significant economic penalty when compared to paying $125.0 million as an opt in license fee to continue the use of the License. Thus, the duration of the contract for revenue recognition purposes is limited to the end of Phase 2a.

The Company determined that the transaction price of the Janssen License and Collaboration Agreement was $60.6 million as of March 31, 2019, a decrease of $0.1 million from the transaction price of $60.7 million at December 31, 2018. In order to determine the transaction price, the Company evaluated all the payments to be received during the duration of the contract. The Company determined that the $50.0 million upfront payment, the $25.0 million payment payable upon filing of the IND, which was fully constrained as of March 31, 2019 and December 31, 2018, and $10.6 million of estimated variable consideration for cost-sharing payments from Janssen for agreed upon services related to Phase 2 activities as of March 31, 2019 constituted consideration to be included in the transaction price, which is to be allocated to the combined performance obligation. The decrease in the transaction price from December 31, 2018 to March 31, 2019 was due to a decrease in estimated variable consideration related to compound supply services and was recognized as a cumulative catch-up adjustment. The Company re-evaluates the transaction price at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur.

As part of the evaluation for determining that the $25.0 million milestone payment upon filing of the IND was fully constrained as of March 31, 2019, the Company considered several factors, including the stage of development of PTG‑200 and that achievement of the milestone is outside of the Company’s control, and therefore concluded that the filing of the IND was not probable at March 31, 2019. If and when the filing of the IND becomes probable, the $25.0 million payment will be constrained by amounts the Company expects to pay for 20% of the cost of Phase 2 activities to be performed by Janssen. The additional potential development, regulatory and sales milestone payments of up to an aggregate of $590.0 million after the completion of Phase 2a activities that the Company is eligible to receive are outside the contract term and as such have been excluded from the transaction price. 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 license granted to Janssen and therefore have also been excluded from the transaction price. At the end of each reporting period, the Company will update its assessment of whether an estimate of variable consideration is constrained and update the estimated transaction price accordingly.

13


 

Table of Contents

The Company uses the most likely amount method to estimate variable consideration. Variable consideration for cost-sharing payments related to agreed upon services for Phase 2 activities that the Company performs within the duration of the contract are included in the transaction price at an amount equal to 80% of the estimated budgeted costs for these activities, including primarily internal full-time equivalent effort and third party contract costs. The Company is responsible for 20% of the development costs for the Phase 2 clinical trial. Accordingly, a significant portion of this work is expected to be performed by Janssen. The Phase 2 clinical trial activity is related to the license and the Company has determined it is not capable of being distinct. This is because both the Company and Janssen cannot benefit from these activities absent the Phase 1 activities. As the Phase 2 activities for which the Company will share 20% of the cost activities are not capable of being distinct and are not separately identifiable within the context of the contract, they are not a distinct service that Janssen transfers to the Company. Therefore, the consideration payable to Janssen is accounted for as a reduction in the transaction price. The Company and Janssen make quarterly cost-sharing payments to one another in amounts necessary to ensure that each party bears its contractual share of the overall shared costs incurred. The Company accounts for cost-sharing payments from Janssen as increases in license and collaboration revenue in its consolidated statements of operations, while cost-sharing payments to Janssen are accounted for as reductions in license and collaboration revenue, or contra-revenue. Costs incurred by the Company related to agreed upon services for Phase 2 activities under the Janssen License and Collaboration Agreement are recorded as research and development expenses in its consolidated statements of operations.

In summary, the license, the development activities for Phase 1 activities and the agreed upon services for Phase 2 activities are combined as one performance obligation that will be performed over the duration of the contract, which is from the effective date of the Janssen License and Collaboration Agreement through to the completion of Phase 2a activities.

The Company utilizes a cost-based input method to measure proportional performance and to calculate the corresponding amount of revenue to recognize. The Company believes this is the best measure of progress because other measures do not reflect how the Company transfers its performance obligation to Janssen. In applying the cost-based input methods of revenue recognition, the Company uses actual costs incurred relative to budgeted costs to fulfill the combined performance obligation. These costs consist primarily of internal full-time equivalent effort and third-party contract costs. Revenue will be recognized based on actual costs incurred as a percentage of total budgeted costs as the Company completes its performance obligations. A cost-based input method of revenue recognition requires management to make estimates of costs to complete the Company’s performance obligations. In making such estimates, significant judgment is required to evaluate assumptions related to cost estimates. The cumulative effect of revisions to estimated costs to complete the Company’s performance obligations will be recorded in the period in which changes are identified and amounts can be reasonably estimated. A significant change in these assumptions and estimates could have a material impact on the timing and amount of revenue recognized in future periods.

For the three months ended March 31, 2019, the Company recognized $1.6 million of license and collaboration revenue primarily related to the transaction price for the Janssen License and Collaboration Agreement recognized based on proportional performance. For the three months ended March 31, 2018, the Company recognized $10.8 million of license and collaboration revenue. This amount included $10.5 million of the transaction price for the Janssen License and Collaboration Agreement recognized based on proportional performance and $0.3 million, net for other services related to Phase 2 activities performed by the Company on behalf of Janssen that are not included in the performance obligations identified under the Janssen License and Collaboration Agreement.

14


 

Table of Contents

The following tables present changes in the Company’s contract assets and liabilities during the periods presented (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at

 

 

 

 

 

Balance at

 

 

Beginning of

 

 

 

 

 

End of

Three Months Ended March 31, 2019

    

Period

    

Additions

    

Deductions

    

Period

Contract assets:

 

 

 

 

 

 

 

 

 

 

 

 

 Receivable from collaboration partner - related party

 

$

2,042

 

$

1,726

 

$

(4)

 

$

3,764

 Contract asset - related party

 

$

2,545

 

$

 —

 

$

(1,248)

 

$

1,297

Contract liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 Deferred revenue - related party

 

$

8,223

 

$

342

 

$

(1,564)

 

$

7,001

 Payable to collaboration partner - related party

 

$

1,061

 

$

150

 

$

 —

 

$

1,211

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at

 

 

 

 

 

Balance at

 

 

Beginning of

 

 

 

 

 

End of

Three Months Ended March 31, 2018

    

Period

    

Additions

    

Deductions

    

Period

Contract assets:

 

 

 

 

 

 

 

 

 

 

 

 

Receivable from collaboration partner - related party

 

$

1,816

 

$

 1,426

 

$

 (520)

 

$

 2,722

Contract liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue - related party

 

$

 31,752

 

$

 609

 

$

 (10,481)

 

$

 21,880

Payable to collaboration partner – related party

 

$

 

$

379

 

$

 

$

379

 

Deferred revenue related to the Janssen License and Collaboration Agreement was $7.0 million as of March 31, 2019, and was comprised of the $50.0 million upfront payment and $8.3 million of cost sharing payments from Janssen for agreed upon services for Phase 2a activities, less $51.3 million of license and collaboration revenue recognized from the effective date of the contract. Deferred revenue will be recognized as the combined performance obligation is satisfied. The Company recorded a $3.8 million receivable from collaboration partner as of March 31, 2019 for cost sharing payments payable from and billed to Janssen and a $1.3 million contract asset for unbilled cost sharing amounts payable from Janssen. The Company also recorded a $1.2 million payable to collaboration partner as of March 31, 2019 for cost sharing amounts payable to Janssen.

Deferred revenue related to the Janssen License and Collaboration Agreement was $21.9 million as of March 31, 2018, and was comprised of the $50.0 million upfront payment and $1.3 million of cost sharing payments from Janssen for agreed upon services for Phase 2a activities, less $29.4 million of license and collaboration revenue recognized from the effective date of the contract. The Company recorded a $2.7 million receivable from collaboration partner as of March 31, 2018 for cost sharing payments payable from and billed to Janssen. The Company also recorded a $0.4 million payable to collaboration partner as of March 31, 2018 for cost sharing amounts payable to Janssen.

During the three months ended March 31, 2019 and 2018, the Company recognized revenue of $1.2 million and $10.5 million, respectively, from amounts included in the deferred revenue contract liability balance at the beginning of the period. None of the costs to obtain or fulfill the contract were capitalized.

Note 4. Fair Value Measurements

Financial assets and liabilities are recorded at fair value. The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

15


 

Table of Contents

Level 2—Inputs (other than quoted market prices included in Level 1) are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

In determining fair value, the Company utilizes quoted market prices, broker or dealer quotations, or valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible and considers counterparty credit risk in its assessment of fair value.

The following table presents the fair value of the Company’s financial assets determined using the inputs defined above (in thousands).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

14,850

 

$

 —

 

$

 

$

14,850

Corporate bonds

 

 

 

 

11,414

  

 

 

 

11,414

Commercial paper

 

 

 

 

54,728

  

 

 

 

54,728

Government bonds

 

 

 

 

22,986

  

 

 

 

22,986

Total financial assets

 

$

14,850

 

$

89,128

  

$

 —

 

$

103,978

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

25,390

 

$

 —

 

$

 

$

25,390

Corporate bonds

 

 

 

 

8,989

  

 

 

 

8,989

Commercial paper

 

 

 

 

59,730

  

 

 

 

59,730

Government bonds

 

 

 

 

33,394

  

 

 

 

33,394

Total financial assets

 

$

25,390

 

$

102,113

  

$

 —

 

$

127,503

 

The Company’s corporate bonds, commercial paper and government bonds are classified as Level 2 as they were valued based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant inputs are observable in the market or can be corroborated by observable market data for substantially the full term of the assets.

16


 

Table of Contents

Note 5. Balance Sheet Components    

Cash Equivalents and Available-for-sale Securities

Cash equivalents and available-for-sale securities consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

 

Amortized

 

Gross Unrealized

 

 

 

    

Cost

    

Gains

    

Losses

    

Fair Value

Money market funds

 

$

14,850

 

$

 —

  

$

 

$

14,850

Corporate bonds

 

 

11,415

 

 

 —

  

 

(1)

 

 

11,414

Commercial paper

 

 

54,737

 

 

 —

  

 

(9)

 

 

54,728

Government bonds

 

 

22,984

 

 

 2

  

 

 —

 

 

22,986

Total cash equivalents and available-for-sale securities

 

$

103,986

 

$

 2

  

$

(10)

 

$

103,978

Classified as:

 

 

 

  

 

 

  

 

 

  

 

 

Cash equivalents

 

 

 

  

 

 

  

 

 

  

$

61,509

Available-for-sale securities

 

 

 

  

 

 

  

 

 

  

 

42,469

Total cash equivalents and available-for-sale securities

 

 

 

  

 

 

  

 

 

  

$

103,978

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2018

 

 

Amortized

 

Gross Unrealized

 

 

 

    

Cost

    

Gains

    

Losses

    

Fair Value

Money market funds

 

$

25,390

 

$

 —

  

$

 

$

25,390

Corporate bonds

 

 

8,997

 

 

 —

  

 

(8)

 

 

8,989

Commercial paper

 

 

59,730

 

 

 —

  

 

 —

 

 

59,730

Government bonds

 

 

33,423

 

 

 —

  

 

(29)

 

 

33,394

Total cash equivalents and available-for-sale securities

 

$

127,540

 

$

 —

  

$

(37)

 

$

127,503

Classified as:

 

 

 

  

 

 

  

 

 

  

 

 

Cash equivalents

 

 

 

  

 

 

  

 

 

  

$

80,883

Available-for-sale securities

 

 

 

  

 

 

  

 

 

  

 

46,620

Total cash equivalents and available-for-sale securities

 

 

 

  

 

 

  

 

 

  

$

127,503

 

Available-for-sale securities - current held as of March 31, 2019 and December 31, 2018 had contractual maturities of less than one year. There were no material realized gains or realized losses on available-for-sale securities for the periods presented. The Company has not experienced any material credit losses on its investments.

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

    

2019

    

2018

Laboratory equipment

 

$

2,702

 

$

2,533

Furniture and computer equipment

 

 

383

 

 

338

Leasehold improvements

 

 

670

 

 

67

Total property and equipment

 

 

3,755

 

 

2,938

Less: accumulated depreciation and amortization

 

 

(2,209)

 

 

(2,077)

Property and equipment, net

 

$

1,546

 

$

861

 

17


 

Table of Contents

Accrued Expenses and Other Payables

 

Accrued expenses and other payables consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

March 31, 

 

December 31,

 

    

2019

 

2018

Accrued clinical and research related expenses

 

$

5,886

 

$

7,781

Accrued employee related expenses

 

 

1,703

 

 

2,726

Accrued construction costs for leasehold improvements

 

 

603

 

 

 —

Accrued professional service fees

 

 

425

 

 

61

Accrued milestone payment to former collaboration partner

 

 

 —

 

 

500

Other

 

 

96

 

 

95

Total accrued expenses and other payables

 

$

8,713

 

$

11,163

 

 

Note 6. Research Collaboration and License Agreement

In October 2013, the Company’s former collaboration partner decided to abandon a collaboration program with the Company and, pursuant to the terms of the agreement between the Company and the former collaboration partner, the Company elected to assume the responsibility for the development and commercialization of the product. Upon the former collaboration partner’s abandonment, it assigned to the Company certain intellectual property that relates to the products arising from the collaboration. Milestone payments to collaboration partners are recorded as research and development expenses in the period that the expense is incurred. The Company did not accrue any payments due to former collaboration partners for research and development expenses during the three months ended March 31, 2019 and 2018.

Note 7. Government Programs

The Company recognized AUD 620,000  ($442,000) and AUD 770,000 ($604,000) as a reduction of research and development expenses for the three months ended March 31, 2019 and 2018, respectively, in connection with the research and development tax incentive from Australia. As of March 31, 2019 and December 31, 2018, the research and development tax incentive receivable was AUD 2.6 million ($1.9 million) and AUD 2.0 million ($1.4 million), respectively.

Based on the nature of the amounts received under the Janssen License and Collaboration Agreement, the Company has concluded that these amounts should be classified as statutory income for Australian taxation purposes. Accordingly, these amounts are not included in the calculation of annual turnover for the purposes of determining eligibility for the refundable research and development tax offset.

Small Business Innovation Research (“SBIR”) Grants

The Company has received SBIR grants from the National Institutes of Health (“NIH”) in support of research aimed at its product candidates. The Company recognizes a reduction to research and development expenses when expenses related to the grants have been incurred and the grant funds become contractually due from NIH. The Company recorded $188,000 and $61,000 as a reduction of research and development expenses for the three months ended March 31, 2019 and 2018, respectively. The Company recorded a receivable for $188,000 and $309,000 as of March 31, 2019 and December 31, 2018, respectively, to reflect the eligible costs incurred under the grants that are contractually due to the Company, and such amounts are included in prepaid expenses and other current assets on the condensed consolidated balance sheets.

Note 8. Leases

On January 1, 2019, the Company adopted ASC 842, which requires entities to recognize assets and liabilities for leases with lease terms of more than 12 months on the balance sheet. Adoption of ASC 842 resulted in the recording

18


 

Table of Contents

of operating lease assets of $7.5 million and operating lease liabilities of $8.3 million. The impact of the changes made to the consolidated balance sheet as of January 1, 2019 as a result of adopting the new guidance was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at

 

Adjustments

 

Balance at

 

 

December 31,

 

Due to

 

January 1,

 

    

2018

    

ASC 842

    

2019

Balance Sheet:

 

 

 

 

 

 

 

 

 

Operating lease right-of-use asset - noncurrent

 

$

 —

 

$

 7,499

 

$

 7,499

Operating lease liability - current

 

 

 —

 

 

1,080

 

 

1,080

Operating lease liability - noncurrent

 

 

 —

 

 

7,219

 

 

7,219

Deferred rent - noncurrent

 

 

799

 

 

(799)

 

 

 —

 

The Company has one operating lease agreement entered into in March 2017 for laboratory space located in Newark, California. The Company provided the landlord with a $450,000 letter of credit collateralized by restricted cash as security deposit for the lease, which expires in May 2024. In March 2019, the Company recorded a receivable from the landlord of $469,000 related to eligible leasehold improvements made to the leased property, which the Company expects to receive during the second quarter of 2019. Leases with terms of 12 months or less are not recorded on the balance sheet, as the related lease expenses are recognized on a straight-line basis over the lease term.

The weighted average lease term and discounts rate are as follows:

 

 

 

 

 

 

    

March 31, 2019

Operating Lease Term and Discount Rate:

 

 

 

Weighted-average remaining lease term

 

 

5.2 years

Weighted-average discount rate

 

 

11.0%

 

19


 

Table of Contents

The following table summarizes the Company’s minimum lease payments and lease liability as of March 31, 2019 (in thousands):

 

 

 

 

 

Year Ending December 31:

    

Amount

2019 (remaining nine months)

 

$

1,422

2020

 

 

1,942

2021

 

 

2,000

2022

 

 

2,059

2023

 

 

2,121

Thereafter