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 June 30, 2019

or

 

 

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

 

For the transition period from                      to

Commission File 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)

 


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

 

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

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

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

Large accelerated filerAccelerated filer ☒ 

Non-accelerated filerSmaller reporting company

Emerging growth company

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b‑2 of the 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.

 

As of July  31, 2019, there were 26,280,086 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

6

 

Notes to Unaudited Condensed Consolidated Financial Statements

7

Item 2. 

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

26

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

38

Item 4. 

Controls and Procedures

38

 

 

 

PART II 

OTHER INFORMATION

 

 

 

 

Item 1. 

Legal Proceedings

39

Item 1A. 

Risk Factors

39

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

85

Item 3. 

Defaults Upon Senior Securities

85

Item 4. 

Mine Safety Disclosure

85

Item 5. 

Other Information

85

Item 6. 

Exhibits

85

 

SIGNATURES

88

 

 

 

 

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)

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31,

 

    

2019

    

2018

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

71,143

 

$

82,233

Restricted cash - current

 

 

10

 

 

10

Available-for-sale securities

 

 

54,958

 

 

46,620

Receivable from collaboration partner and contract asset - related party

 

 

4,889

 

 

4,587

Research and development tax incentive receivable

 

 

1,421

 

 

1,429

Prepaid expenses and other current assets

 

 

4,899

 

 

2,624

Total current assets

 

 

137,320

 

 

137,503

Property and equipment, net

 

 

1,692

 

 

861

Restricted cash - noncurrent

 

 

450

 

 

450

Operating lease right-of-use asset

 

 

6,539

 

 

 —

Deferred tax asset

 

 

2,104

 

 

658

Total assets

 

$

148,105

 

$

139,472

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

  

 

 

Accounts payable

 

$

2,787

 

$

5,711

Payable to collaboration partner - related party

 

 

810

 

 

1,061

Accrued expenses and other payables

 

 

10,845

 

 

11,163

Operating lease liability - current

 

 

1,164

 

 

 —

Deferred revenue - related party

 

 

17,717

 

 

8,223

Total current liabilities

 

 

33,323

 

 

26,158

Deferred revenue - related party - noncurrent

 

 

23,850

 

 

 —

Operating lease liability - noncurrent

 

 

6,616

 

 

 —

Deferred rent

 

 

 —

 

 

799

Total liabilities

 

 

63,789

 

 

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; 24,967,603 and 23,187,219 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively

 

 

 —

 

 

Additional paid-in capital

 

 

268,234

 

 

253,222

Accumulated other comprehensive loss

 

 

(167)

 

 

(233)

Accumulated deficit

 

 

(183,751)

 

 

(140,474)

Total stockholders’ equity

 

 

84,316

 

 

112,515

Total liabilities and stockholders’ equity

 

$

148,105

 

$

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

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2019

    

2018

    

2019

    

2018

 

 

 

 

 

 

 

 

 

 

 

 

 

License and collaboration revenue - related party

 

$

(8,189)

 

$

11,674

 

$

(6,629)

 

$

22,455

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

19,355

 

 

17,735

 

 

31,799

 

 

33,103

General and administrative

 

 

3,863

 

 

3,178

 

 

7,627

 

 

6,820

Total operating expenses

 

 

23,218

 

 

20,913

 

 

39,426

 

 

39,923

Loss from operations

 

 

(31,407)

 

 

(9,239)

 

 

(46,055)

 

 

(17,468)

Interest income

 

 

604

 

 

576

 

 

1,333

 

 

1,144

Loss before income tax benefit

 

 

(30,803)

 

 

(8,663)

 

 

(44,722)

 

 

(16,324)

Income tax benefit

 

 

1,629

 

 

 —

 

 

1,445

 

 

 —

Net loss

 

$

(29,174)

 

$

(8,663)

 

$

(43,277)

 

$

(16,324)

Net loss per share, basic and diluted

 

$

(1.18)

 

$

(0.41)

 

$

(1.77)

 

$

(0.77)

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

 

 

24,662,779

  

 

21,207,234

 

 

24,481,186

  

 

21,160,076

 

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

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PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Comprehensive Loss

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

June 30, 

 

June 30, 

 

    

2019

    

2018

    

2019

    

2018

Net loss

 

$

(29,174)

 

$

(8,663)

 

$

(43,277)

 

$

(16,324)

Other comprehensive loss:

 

 

 

  

 

 

 

 

 

  

 

 

Loss on translation of foreign operations

 

 

(19)

 

 

(68)

 

 

(4)

 

 

(86)

Unrealized gain on available-for-sale securities

 

 

41

 

 

54

 

 

70

 

 

 6

Comprehensive loss

 

$

(29,152)

 

$

(8,677)

 

$

(43,211)

 

$

(16,404)

 

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

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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 March 31, 2019

 

23,392,534

  

$

 —

 

$

255,591

  

$

(189)

 

$

(154,577)

  

$

100,825

Stock-based compensation expense

 

 —

  

 

 

 

2,013

  

 

 

 

 —

  

 

2,013

Common stock issued pursuant to at-the-market offering, net of issuance costs

 

921,684

 

 

 —

 

 

10,543

 

 

 —

 

 

 —

 

 

10,543

Common stock issued pursuant to exercise of Exchange Warrants

 

599,997

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Common stock issued under equity incentive and employee stock purchase plans

 

53,388

  

 

 

 

87

  

 

 

 

 —

  

 

87

Other comprehensive gain

 

 —

  

 

 

 

 —

  

 

22

 

 

 —

  

 

22

Net loss

 

 —

  

 

 

 

 —

  

 

 

 

(29,174)

  

 

(29,174)

Balance at June 30, 2019

 

24,967,603

  

$

 —

 

$

268,234

  

$

(167)

 

$

(183,751)

  

$

84,316

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

Total

 

 

Common

 

Paid-In

 

Comprehensive

 

Accumulated

 

Stockholders'

 

 

Stock

 

Capital

 

Loss

 

Deficit

 

Equity

 

  

Shares

  

Amount

  

 

 

  

 

 

  

 

 

  

 

 

Balance at March 31, 2018

 

21,163,590

 

$

 —

 

$

223,904

 

$

(72)

 

$

(109,211)

 

$

114,621

Stock-based compensation expense

 

 —

  

 

 

 

1,645

  

 

 

 

 —

  

 

1,645

Common stock issued under equity incentive and employee stock purchase plans

 

53,904

  

 

 

 

73

  

 

 

 

 —

  

 

73

Other comprehensive gain

 

 —

  

 

 

 

 —

  

 

(14)

 

 

 —

  

 

(14)

Net loss

 

 —

  

 

 

 

 —

  

 

 

 

(8,663)

  

 

(8,663)

Balance at June 30, 2018

 

21,217,494

  

$

 —

 

$

225,622

  

$

(86)

 

$

(117,874)

  

$

107,662

 

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

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PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Stockholders’ Equity (Continued)

(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

 

 —

  

 

 

 

3,992

  

 

 

 

 —

  

 

3,992

Common stock issued pursuant to at-the-market offering, net of issuance costs

 

921,684

 

 

 —

 

 

10,543

 

 

 —

 

 

 —

 

 

10,543

Common stock issued pursuant to exercise of Exchange Warrants

 

599,997

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Common stock issued under equity incentive and employee stock purchase plans

 

258,703

  

 

 

 

477

  

 

 

 

 —

  

 

477

Other comprehensive gain

 

 —

  

 

 

 

 —

  

 

66

 

 

 —

  

 

66

Net loss

 

 —

  

 

 

 

 —

  

 

 

 

(43,277)

  

 

(43,277)

Balance at June 30, 2019

 

24,967,603

  

$

 —

 

$

268,234

  

$

(167)

 

$

(183,751)

  

$

84,316

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 —

  

 

 

 

2,830

  

 

 

 

 —

  

 

2,830

Common stock issued under equity incentive and employee stock purchase plans

 

129,188

  

 

 

 

604

  

 

 

 

 —

  

 

604

Other comprehensive gain

 

 —

  

 

 

 

 —

  

 

(80)

 

 

 —

  

 

(80)

Net loss

 

 —

  

 

 

 

 —

  

 

 

 

(16,324)

  

 

(16,324)

Balance at June 30, 2018

 

21,217,494

  

$

 —

 

$

225,622

  

$

(86)

 

$

(117,874)

  

$

107,662

 

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

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PROTAGONIST THERAPEUTICS, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands) 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

June 30, 

 

    

2019

    

2018

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

  

 

 

  

Net loss

 

$

(43,277)

 

$

(16,324)

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

 

 

 

 

 

 

Stock-based compensation

 

 

3,992

 

 

2,830

Operating lease right-of-use asset amortization

 

 

903

 

 

 —

Change in deferred tax asset

 

 

(1,446)

 

 

 —

Depreciation and amortization

 

 

306

 

 

248

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

 

 

(209)

 

 

110

Changes in operating assets and liabilities:

 

 

 

 

 

 

Research and development tax incentive receivable

 

 

 —

 

 

(963)

Receivable from collaboration partner and contract asset - related party

 

 

(302)

 

 

(3,968)

Prepaid expenses and other assets

 

 

(1,804)

 

 

807

Accounts payable

 

 

(2,998)

 

 

1,014

Payable to collaboration partner - related party

 

 

(251)

 

 

276

Accrued expenses and other payables

 

 

(319)

 

 

3,984

Operating lease liability

 

 

(931)

 

 

 —

Deferred revenue - related party

 

 

33,344

 

 

(18,550)

Net cash used in operating activities

 

 

(12,992)

 

 

(30,536)

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

 

Purchase of available-for-sale securities

 

 

(52,459)

 

 

(39,012)

Proceeds from maturities of available-for-sale securities

 

 

44,400

 

 

27,035

Purchases of property and equipment, net

 

 

(1,058)

 

 

(276)

Net cash used in investing activities

 

 

(9,117)

 

 

(12,253)

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

 

Proceeds from at-the-market offering, net of issuance costs

 

 

10,543

 

 

 —

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

 

 

477

 

 

604

Net cash provided by financing activities

 

 

11,020

 

 

604

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

 

 

(1)

 

 

20

Net decrease in cash, cash equivalents and restricted cash

 

 

(11,090)

 

 

(42,165)

Cash, cash equivalents and restricted cash, beginning of period

 

 

82,693

 

 

106,489

Cash, cash equivalents and restricted cash, end of period

 

$

71,603

 

$

64,324

SUPPLEMENTAL DISCLOSURES OF NON-CASH FINANCING AND INVESTING INFORMATION:

 

 

 

 

 

 

Purchases of property and equipment in accounts payable and accrued liabilities

 

$

82

 

$

 8

Tenant improvement allowance reimbursement

 

$

469

 

$

 —

 

 

 

 

 

 

 

 

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

 

 

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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 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 $183.8 million as of June 30, 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 June 30, 2019, the Company has financed its operations primarily through private placements of redeemable convertible preferred stock, offerings of common stock and payments received under license and collaboration agreements.

 

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 and six months ended June 30, 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.

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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, research and development tax incentives, available-for-sale securities and leases.  Estimates related to revenue recognition include actual costs incurred versus total estimated budgeted costs of the Company’s deliverables to determine percentage of completion, and application and estimates of constraints 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 two 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 Condensed 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 condensed consolidated balance sheets.

 

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

 

 

 

 

 

 

 

 

 

June 30, 

 

    

2019

    

2018

Cash and cash equivalents

 

$

71,143

 

$

63,864

Restricted cash - current

 

 

10

 

 

10

Restricted cash - noncurrent

 

 

450

 

 

450

Cash balance in condensed consolidated statements of cash flows

 

$

71,603

 

$

64,324

 

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. The Company constrains its estimate of the transaction price up to the amount (the “variable consideration constraint”) that a significant reversal of recognized revenue is not probable.

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Licenses of intellectual property:  If a 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 judgment 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 or amendment 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).

Upfront 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.

Contractual cost sharing payments made to a customer are accounted for as a reduction to the transaction price if such payments are not related to distinct goods or services received from the customer.

Contracts may be amended to account for changes in contract specifications and requirements. Contract modifications exist when the amendment either creates new, or changes existing, enforceable rights and obligations. When contract modifications create new performance obligations and the increase in consideration approximates the standalone selling price for goods and services related to such new performance obligations as adjusted for specific facts and circumstances of the contract, the modification is considered to be a separate contract and revenue is recognized prospectively. If a contract modification is not accounted for as a separate contract, the Company accounts for the promised goods or services not yet transferred at the date of the contract modification (the remaining promised goods or services) prospectively, as if it were a termination of the existing contract and the creation of a new contract, if the remaining goods or services are distinct from the goods or services transferred on or before the date of the contract

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modification. The Company accounts for a contract modification as if it were a part of the existing contract if the remaining goods or services are not distinct and, therefore, form part of a single performance obligation that is partially satisfied at the date of the contract modification. In such case the effect that the contract modification has on the transaction price, and on the entity’s measure of progress toward complete satisfaction of the performance obligation, is recognized as an adjustment to revenue (either as an increase in or a reduction of revenue) at the date of the contract modification (the adjustment to revenue is made on a cumulative catch-up basis).

The period between when the Company transfers control of promised goods or services and when the Company receives payment is expected to be one year or less, and that expectation is consistent with the Company’s historical experience. Upfront payment contract liabilities resulting from the Company’s license and collaboration agreements do not represent a financing component as the payment is not financing the transfer of goods and services, and the technology underlying the licenses granted reflects research and development expenses already incurred by the Company. As such, the Company does not adjust its revenues for the effects of a significant financing component.

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 pre-clinical materials, research costs, development milestone payments under license and collaboration agreements, and other consulting services.

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 refund from the Australian Taxation Office. The refundable cash 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 refundable cash 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. The Company may alternatively be eligible for a taxable credit in the form of a non-cash tax incentive. The Company evaluates its eligibility under tax incentive programs as of each balance sheet date and makes accrual and related adjustments based on the most current and relevant data available.

 

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, 

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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 Financial Accounting Standards Board (“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 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 June 30, 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. In May 2019, the FASB issued ASU No. 2019-05, which amended the new standard by providing targeted transition relief. The new guidance 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

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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. License and 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 the first Phase 2 clinical trial for PTG-200 in CD, including filing the U.S. Investigational New Drug application (“IND”). Development costs for the Phase 2 clinical trial are shared between the parties on an 80/20 basis, with Janssen assuming the larger share.

The Company entered into an amendment (the “First Amendment”) to the Janssen License and Collaboration Agreement effective May 7, 2019. The First Amendment builds upon the Company’s ongoing development collaboration with Janssen for PTG-200 and, upon the effectiveness of the First Amendment, the Company became eligible to receive a $25.0 million payment from Janssen, which was received during the second quarter of 2019. The First Amendment expands the scope of the Janssen License and Collaboration Agreement by supporting research efforts towards identifying and developing second-generation IL-23 receptor antagonists (“second-generation compounds”).

 

As part of the services added in the First Amendment, Janssen will pay certain costs and milestones related to advancing pre-clinical candidates from the second-generation research program into Phase 1 studies, including funding of a certain number of full-time equivalent employees (“FTEs”) at the Company for a set period of time and funding of the research activities of such FTEs. The Company will pay 100% of the costs for the Phase 1 studies for the first second-generation compound, and 50% of the costs of the Phase 1 studies for the second and third second-generation compounds; thereafter Janssen will pay 100% of the Phase 1 costs. Development costs for the Phase 2 clinical trials for second-generation compounds are shared between the parties on an 80/20 basis, with Janssen assuming the larger share. The Company’s Phase 1 and Phase 2 development costs are also limited by overall spending caps.

 

The Company was eligible to receive a $25.0 million milestone payment upon Janssen’s filing of the IND. This amount was considered constrained up until the First Amendment became effective, at which time the Company became eligible to receive the $25.0 million payment from Janssen. Payments to the Company for research and development services are generally billed and collected as services are performed, including research activities and Phase 1 and Phase 2 development activities. Janssen bills the Company for its 20% share of the Phase 2 development costs as expenses are incurred by Janssen. Milestone payments are paid when achieved.

 

Pursuant to the First Amendment, the Company will continue to receive clinical development, regulatory and commercial milestones if Janssen elects to retain its license following completion of Phase 2a and/or Phase 2b studies with PTG-200 and/or second-generation compounds. Following the conclusion of the planned Phase 2a portion of a

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Phase 2 clinical trial with respect to PTG-200, if Janssen elects to maintain its license rights and continue the development of PTG-200 in the Phase 2b portion of such clinical trials (the “Amended First Opt-in”) prior to dosing of the third patient in the first Phase 2 clinical trial of second-generation compound, the Company would be eligible to receive a $50.0 million payment. Following the conclusion of the planned Phase 2b portion of a Phase 2 clinical trial with respect to PTG-200 or the first Phase 2 clinical trial of second-generation compounds, if Janssen elects to maintain its license rights (the “Amended Second Opt-in”), among other things, the Company would be eligible to receive a $50.0 million payment. Formerly, the first and second opt-in payments were $125.0 million and $215.0 million, respectively. If Janssen does not make the Amended Second Opt-in election, with respect to either PTG-200 or a second-generation compound, the Janssen License and Collaboration Agreement would terminate.

 

Upon making the Amended Second Opt-in election, Janssen will receive exclusive, worldwide rights to develop and commercialize PTG-200 and any second-generation compounds derived from the research collaboration contemplated by the Janssen License and Collaboration Agreement and the First Amendment. Pursuant to the First Amendment, the Company will be eligible to receive tiered royalties on net product sales at percentages ranging from mid-single digits to ten. As set forth in the First Amendment, the Company will also be eligible for certain additional milestone payments including a potential payment of either $100.0 million upon a Phase 3 CD clinical trial reaching a primary clinical endpoint with respect to PTG-200 or $115.0 million upon a Phase 3 CD clinical trial reaching a primary clinical endpoint with respect to a second-generation compound. Under the terms of the First Amendment, the Company will be eligible to receive up to $1.0 billion in research, development, regulatory and sales milestones.

 

The Janssen License and Collaboration Agreement remains in effect until the royalty obligations cease following patent and regulatory expiry, unless terminated earlier. 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 has concluded that the amended Janssen License and Collaboration Agreement continues to contain a single performance obligation including the development license; second-generation compound research services; Phase 1 development services for PTG-200 and two potential second-generation compounds; the Company’s services associated with Phase 2 development for PTG-200 until Phase 2a; the Company’s services associated with Phase 2 development for a second-generation product until the dosing of the third patient in Phase 2b; and all other such services that the Company may perform at the request of Janssen to support the development of PTG-200, second-generation research services, or the development of a second-generation compound. The Company concluded that the Amended First Opt-in Election and the Amended Second Opt-in Election options are not considered to be material rights.

The Company determined that the license was not distinct from the added research and development services within the context of the agreement because the added research and development services significantly increase the utility of the intellectual property. The Company also determined that the remaining research and development services are not distinct from the partially delivered combined promise comprised under the agreement prior to the First Amendment of the development license and PTG-200 services, including compound supply and other services. Therefore, the First Amendment is treated as if it were part of the original Janssen License and Collaboration Agreement. The First Amendment will be accounted for as if it were an extension of services under the initial Janssen License and Collaboration Agreement by applying a cumulative catch-up adjustment to revenue. As of the effective date of the First Amendment, the Company calculated the adjusted cumulative revenue under the amended Janssen License and Collaboration Agreement by updating the transaction price for the incremental consideration to be received, net of the incremental development cost reimbursement to be paid to Janssen, and an updated percentage complete, which resulted in a cumulative adjustment that reduced revenue by $9.4 million.

The contract duration is defined as the period in which parties to the contract have present enforceable rights and obligations. For revenue recognition purposes, the Company determined that the duration of the Janssen License

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and Collaboration Agreement, as amended, began on the effective date of July 13, 2017 and ends upon the later of end of Phase 2a for PTG-200 or upon dosing of the third patient in Phase 2b for a second-generation compound.

The Company uses the most likely amount method to estimate variable consideration included in the transaction price. Variable consideration after the First Amendment consists of future milestone payments and cost sharing payments from Janssen for agreed upon services offset by Phase 2 development costs reimbursement payable to Janssen. Cost sharing payments from Janssen relate to the 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. Cost sharing payments to Janssen relate to agreed upon services for Phase 2 activities that Janssen performs within the duration of the contract 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 determined that the new transaction price of the Janssen License and Collaboration Agreement was $109.2 million as of June 30, 2019, an increase of $48.6 million from the transaction price of $60.6 million at March 31, 2019. In order to determine the transaction price, the Company evaluated all payments to be received during the duration of the contract, net of Phase 2 development costs reimbursement expected to be payable to Janssen. The Company determined that the transaction price includes the $50.0 million upfront payment, the $25.0 million payment payable upon the effectiveness of the First Amendment, $17.3 million of reimbursement from Janssen for services performed for PTG-200 Phase 2 and for second-generation compound research costs and other services, and $16.9 million of estimated variable consideration. The Company evaluated whether the variable component of the transaction price should be constrained to ensure that a significant reversal of revenue recognized on a cumulative basis as of June 30, 2019 is not probable. The Company concluded that that the variable consideration constraint does not further decrease the estimated transaction price as of June 30, 2019. The additional potential development, regulatory and sales milestone payments after the completion of Phase 2b activities that the Company is eligible to receive are outside the contract term and as such have been excluded from the transaction price. The increase in transaction price following the First Amendment was due primarily to the collection of the $25 million payment and increases in reimbursable costs related to new and extended research and development services, offset by Phase 2 development costs reimbursement payable to Janssen.

The Company re-evaluates the transaction price, including variable consideration, at the end of each reporting period and as uncertain events are resolved or other changes in circumstances occur. 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 utilizes a cost-based input method to measure proportional performance and to calculate the corresponding amount of revenue to recognize. In applying the cost-based input methods of revenue recognition, the Company uses actual costs incurred relative to expected 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 estimated 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. 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 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 June 30, 2019, the Company recorded a $9.4 million cumulative catchup adjustment reducing license and collaboration revenue, partially offset by $1.2 million of license and collaboration revenue following the contract modification for the First Amendment. For the three months ended June 30, 2018, the Company recognized $11.7 million of license and collaboration revenue.

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For the six months ended June 30, 2019, the Company recorded a $9.4 million cumulative catchup adjustment reducing license and collaboration revenue, partially offset by $1.2 million of license and collaboration revenue following the contract modification for the First Amendment and $1.6 million of revenue recognized during the first quarter of 2019 under the original Janssen License and Collaboration agreement. For the six months ended June 30, 2018, the Company recognized $22.5 million of license and collaboration revenue.

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

Six Months Ended June 30, 2019

    

Period

 

Additions

    

Deductions

    

Period

Contract assets:

 

 

 

 

 

 

 

 

 

 

 

 

 Receivable from collaboration partner - related party

 

$

2,042

 

$

29,881

 

$

(27,034)

 

$

4,889

 Contract asset - related party

 

$

2,545

 

$

 —

 

$

(2,545)

 

$

 —

Contract liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 Deferred revenue - related party

 

$

8,223

 

$

34,526

 

$

(1,182)

 

$

41,567

 Payable to collaboration partner - related party

 

$

1,061

 

$

625

 

$

(876)

 

$

810

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at

 

 

 

 

 

 

 

Balance at

 

 

Beginning of

 

 

 

 

 

End of

Six Months Ended June 30, 2018

    

Period

 

Additions

    

Deductions

    

Period

Contract assets:

 

 

 

 

 

 

 

 

 

 

 

 

 Receivable from collaboration partner - related party

 

$

1,816

 

$

4,627

 

$

(658)

 

$

5,785

Contract liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 Deferred revenue - related party

 

$

31,752

 

$

3,451

 

$

(22,001)

 

$

13,202

 Payable to collaboration partner - related party

 

$

 —

 

$

580

 

$

(304)

 

$

276

 

During the three and six months ended June 30 2019,  the Company recognized revenue of $1.6 million from amounts included in the deferred revenue contract liability balance at the beginning of the period. During the three and six months ended June 30, 2018, the Company recognized revenue of $11.5 million and $22.0 million, respectively, from amounts included in the 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.

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.

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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).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2019

 

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

38,877

 

$

 —

 

$

 

$

38,877

Corporate bonds

 

 

 

 

12,578

  

 

 

 

12,578

Commercial paper

 

 

 

 

36,563

  

 

 

 

36,563

Government bonds

 

 

 

 

33,150

  

 

 

 

33,150

Total financial assets

 

$

38,877

 

$

82,291

  

$

 —

 

$

121,168

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

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):