agen-10q_20190331.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

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

For the quarterly period ended 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 Number: 000-29089

Agenus Inc.

(exact name of registrant as specified in its charter)

 

 

Delaware

 

06-1562417

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

3 Forbes Road, Lexington, Massachusetts 02421

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code:

(781) 674-4400

 

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, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

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

 

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

Securities registered or to be 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 $0.01

AGEN

The Nasdaq Capital Market


Number of shares outstanding of the issuer’s Common Stock as of May 6, 2019: 134,258,564 shares

 

 

 

 


Agenus Inc.

Three Months Ended March 31, 2019

Table of Contents

 

 

 

 

 

Page

PART I

 

 

ITEM 1.

 

Financial Statements:

 

2

 

 

Condensed Consolidated Balance Sheets as of March 31, 2019 (Unaudited) and December 31, 2018

 

2

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2019 and 2018 (Unaudited)

 

4

 

 

Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit for the three months ended March 31, 2019 and 2018 (Unaudited)

 

5

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (Unaudited)

 

7

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

8

ITEM 2.

 

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

 

23

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

27

ITEM 4.

 

Controls and Procedures

 

28

 

 

 

PART II

 

 

ITEM 1A.

 

Risk Factors

 

29

ITEM 6.

 

Exhibits

 

56

 

 

Signatures

 

57

 

 

 

 


PART I - FINANCIAL INFORMATION

Item 1.

Financial Statements

AGENUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Amounts in thousands, except share and per share amounts)

 

 

 

March 31, 2019

 

 

December 31, 2018

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

158,306

 

 

$

53,054

 

Inventories

 

 

55

 

 

 

55

 

Accounts receivable

 

 

796

 

 

 

938

 

Prepaid expenses

 

 

18,115

 

 

 

19,265

 

Other current assets

 

 

1,851

 

 

 

1,496

 

Total current assets

 

 

179,123

 

 

 

74,808

 

Property, plant and equipment, net of accumulated amortization and depreciation of

   $39,301 and $38,068 at March 31, 2019 and December 31, 2018, respectively

 

 

25,704

 

 

 

25,116

 

Operating lease right-of-use assets

 

 

5,335

 

 

 

 

Goodwill

 

 

22,751

 

 

 

22,925

 

Acquired intangible assets, net of accumulated amortization of $7,921 and

   $7,472 at March 31, 2019 and December 31, 2018, respectively

 

 

11,806

 

 

 

12,338

 

Other long-term assets

 

 

1,214

 

 

 

1,214

 

Total assets

 

$

245,933

 

 

$

136,401

 

LIABILITIES, CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Current portion, long-term debt

 

$

13,517

 

 

$

146

 

Current portion, liability related to sale of future royalties and milestones

 

 

29,426

 

 

 

27,443

 

Current portion, deferred revenue

 

 

27,240

 

 

 

1,814

 

Current portion, operating lease liabilities

 

 

1,484

 

 

 

 

Accounts payable

 

 

12,734

 

 

 

13,624

 

Accrued liabilities

 

 

20,737

 

 

 

24,551

 

Other current liabilities

 

 

373

 

 

 

484

 

Total current liabilities

 

 

105,511

 

 

 

68,062

 

Long-term debt, net of current portion

 

 

 

 

 

13,212

 

Liability related to sale of future royalties and milestones, net of current portion

 

 

181,497

 

 

 

182,817

 

Deferred revenue, net of current portion

 

 

32,367

 

 

 

1,165

 

Operating lease liabilities, net of current portion

 

 

5,859

 

 

 

 

Contingent purchase price considerations

 

 

5,786

 

 

 

3,038

 

Other long-term liabilities

 

 

798

 

 

 

2,773

 

Commitments and contingencies

 

 

 

 

 

 

 

 

CONVERTIBLE PREFERRED STOCK

 

 

 

 

 

 

 

 

Preferred stock, par value $0.01 per share; 5,000,000 shares authorized:

 

 

 

 

 

 

 

 

Series C-1 convertible preferred stock; 15,459 shares and 18,459 shares

   designated, issued, and outstanding at March 31, 2019 and December 31, 2018,

   respectively

 

 

33,398

 

 

 

39,879

 

STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

 

Series A-1 convertible preferred stock; 31,620 shares designated, issued, and

   outstanding at March 31, 2019 and December 31, 2018; liquidation value

   of $32,884 at March 31, 2019

 

 

0

 

 

 

0

 

Common stock, par value $0.01 per share; 240,000,000 shares authorized; 134,206,019

   and 119,996,331 shares issued at March 31, 2019 and December 31, 2018,

   respectively

 

 

1,342

 

 

 

1,200

 

Additional paid-in capital

 

 

1,043,575

 

 

 

1,005,183

 

2

 


Accumulated other comprehensive loss

 

 

(2,221

)

 

 

(1,539

)

Accumulated deficit

 

 

(1,158,830

)

 

 

(1,177,311

)

Total stockholders’ deficit attributable to Agenus Inc.

 

 

(116,134

)

 

 

(172,467

)

Non-controlling interest

 

 

(3,149

)

 

 

(2,078

)

Total stockholders’ deficit

 

 

(119,283

)

 

 

(174,545

)

Total liabilities, convertible preferred stock and stockholders’ deficit

 

$

245,933

 

 

$

136,401

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

3

 


AGENUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(Amounts in thousands, except per share amounts)

 

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Revenue:

 

 

 

 

 

 

 

 

Research and development

 

$

70,871

 

 

$

1,636

 

Grant revenue

 

 

415

 

 

 

 

Non-cash royalty revenue related to the sale of future royalties

 

 

8,605

 

 

 

 

Total revenues

 

 

79,891

 

 

 

1,636

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

(40,130

)

 

 

(29,441

)

General and administrative

 

 

(10,805

)

 

 

(8,928

)

Contingent purchase price consideration fair value adjustment

 

 

(2,748

)

 

 

(5,016

)

Operating income (loss)

 

 

26,208

 

 

 

(41,749

)

Other expense:

 

 

 

 

 

 

 

 

Loss on early extinguishment of debt

 

 

 

 

 

(10,767

)

Non-operating income

 

 

370

 

 

 

1,035

 

Interest expense, net

 

 

(9,143

)

 

 

(2,781

)

Net income (loss)

 

 

17,435

 

 

 

(54,262

)

Dividends on Series A-1 convertible preferred stock

 

 

(52

)

 

 

(52

)

Less: net loss attributable to non-controlling interest

 

 

(1,071

)

 

 

(121

)

Net income (loss) attributable to Agenus Inc. common stockholders

 

$

18,454

 

 

$

(54,193

)

Per common share data:

 

 

 

 

 

 

 

 

Basic net income (loss) attributable to Agenus Inc. common stockholders

 

$

0.14

 

 

$

(0.53

)

Diluted net income (loss) attributable to Agenus Inc. common stockholders

 

 

0.12

 

 

 

(0.53

)

Weighted average number of Agenus Inc. common shares outstanding:

 

 

 

 

 

 

 

 

Basic

 

 

129,700

 

 

 

102,576

 

Diluted

 

 

148,590

 

 

 

102,576

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

Foreign currency translation loss

 

$

(682

)

 

$

(537

)

Other comprehensive loss

 

 

(682

)

 

 

(537

)

Comprehensive income (loss)

 

$

17,772

 

 

$

(54,730

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

 


 

4

 


AGENUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

For the Quarters Ended March 31, 2019 and 2018

(Unaudited)

(Amounts in thousands)

 

 

 

 

Series C-1

 

 

 

Series A-1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible

 

 

 

Convertible

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

 

Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

Shares

 

 

Amount

 

 

 

Number of

Shares

 

 

Par

Value

 

 

Number of

Shares

 

 

Par

Value

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Non-controlling

Interest

 

 

Accumulated

Deficit

 

 

Total

 

Balance at December 31, 2018

 

 

18

 

 

$

39,879

 

 

 

 

32

 

 

$

0

 

 

 

119,996

 

 

$

1,200

 

 

$

1,005,183

 

 

$

(1,539

)

 

$

(2,078

)

 

$

(1,177,311

)

 

$

(174,545

)

Net income (loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,071

)

 

 

18,506

 

 

 

17,435

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(682

)

 

 

 

 

 

 

 

 

 

(682

)

Adoption of ASC 842

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25

)

 

 

(25

)

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,843

 

 

 

 

 

 

 

 

 

 

 

 

1,843

 

Shares sold under stock purchase agreement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,111

 

 

 

111

 

 

 

29,889

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30,000

 

Conversion of Series C-1 convertible preferred stock

 

 

(3

)

 

 

(6,481

)

 

 

 

 

 

 

 

 

 

3,000

 

 

 

30

 

 

 

6,451

 

 

 

 

 

 

 

 

 

 

 

 

6,481

 

Payment of consultant in shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14

 

 

 

0

 

 

 

37

 

 

 

 

 

 

 

 

 

 

 

 

37

 

Exercise of stock options and employee share purchases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

85

 

 

 

1

 

 

 

172

 

 

 

 

 

 

 

 

 

 

 

 

173

 

Balance at March 31, 2019

 

 

15

 

 

$

33,398

 

 

 

 

32

 

 

$

0

 

 

 

134,206

 

 

$

1,342

 

 

$

1,043,575

 

 

$

(2,221

)

 

$

(3,149

)

 

$

(1,158,830

)

 

$

(119,283

)

 

 


5

 


AGENUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

For the Quarters Ended March 31, 2019 and 2018

(Unaudited)

(Amounts in thousands)

 

 

 

 

 

Series C-1

 

 

 

Series A-1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Convertible

 

 

 

Convertible

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock

 

 

 

Preferred Stock

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of

Shares

 

 

Amount

 

 

 

Number of

Shares

 

 

Par

Value

 

 

Number of

Shares

 

 

Par

Value

 

 

Additional

Paid-In

Capital

 

 

Accumulated

Other

Comprehensive

Income (Loss)

 

 

Non-controlling

Interest

 

 

Accumulated

Deficit

 

 

Total

 

Balance at December 31, 2017

 

 

 

 

$

 

 

 

 

32

 

 

$

0

 

 

 

101,706

 

 

$

1,017

 

 

$

951,812

 

 

$

(2,169

)

 

$

 

 

$

(1,026,476

)

 

$

(75,816

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(121

)

 

 

(54,141

)

 

 

(54,262

)

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(537

)

 

 

 

 

 

 

 

 

(537

)

Adoption of ASC 606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

8,856

 

 

 

8,856

 

AgenTus share distribution

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

274

 

 

 

 

 

 

274

 

Share-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,932

 

 

 

 

 

 

 

 

 

 

 

 

1,932

 

Vesting of nonvested shares

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

53

 

 

 

1

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

Shares sold at the market

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,202

 

 

 

12

 

 

 

5,246

 

 

 

 

 

 

 

 

 

 

 

 

5,258

 

Exercise of stock options and employee share purchases

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

320

 

 

 

3

 

 

 

1,057

 

 

 

 

 

 

 

 

 

 

 

 

1,060

 

Balance at March 31, 2018

 

 

 

 

$

 

 

 

 

32

 

 

$

0

 

 

 

103,281

 

 

$

1,033

 

 

$

960,046

 

 

$

(2,706

)

 

$

153

 

 

$

(1,071,761

)

 

$

(113,235

)

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

6

 


AGENUS INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Amounts in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

17,435

 

 

$

(54,262

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,640

 

 

 

1,558

 

Share-based compensation

 

 

1,843

 

 

 

2,205

 

Non-cash royalty revenue

 

 

(8,605

)

 

 

 

Non-cash interest expense

 

 

9,428

 

 

 

2,669

 

Loss on disposal of assets

 

 

 

 

 

75

 

Change in fair value of contingent obligations

 

 

2,748

 

 

 

5,016

 

Loss on extinguishment of debt

 

 

 

 

 

10,767

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

142

 

 

 

6

 

Inventories

 

 

 

 

 

17

 

Prepaid expenses

 

 

1,141

 

 

 

27

 

Accounts payable

 

 

(860

)

 

 

(2,818

)

Deferred revenue

 

 

56,628

 

 

 

(473

)

Accrued liabilities and other current liabilities

 

 

(2,605

)

 

 

(3,524

)

Other operating assets and liabilities

 

 

(2,348

)

 

 

(1,514

)

Net cash provided by (used in) operating activities

 

 

76,587

 

 

 

(40,251

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Proceeds from sale of plant and equipment

 

 

 

 

 

5

 

Purchases of plant and equipment

 

 

(1,501

)

 

 

(1,495

)

Net cash used in investing activities

 

 

(1,501

)

 

 

(1,490

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net proceeds from sale of equity

 

 

30,000

 

 

 

5,258

 

Proceeds from employee stock purchases and option exercises

 

 

172

 

 

 

1,061

 

Proceeds from sale of future royalties

 

 

 

 

 

189,878

 

Transaction costs from sale of future royalties and milestones

 

 

 

 

 

(494

)

Repayments of debt

 

 

 

 

 

(161,847

)

Payment of finance lease obligation

 

 

(75

)

 

 

(65

)

Net cash provided by financing activities

 

 

30,097

 

 

 

33,791

 

Effect of exchange rate changes on cash

 

 

69

 

 

 

110

 

Net increase (decrease) in cash and cash equivalents

 

 

105,252

 

 

 

(7,840

)

Cash and cash equivalents, beginning of period

 

 

53,054

 

 

 

60,187

 

Cash and cash equivalents, end of period

 

$

158,306

 

 

$

52,347

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

312

 

 

$

276

 

Supplemental disclosures - non-cash activities:

 

 

 

 

 

 

 

 

Purchases of plant and equipment in accounts payable and

   accrued liabilities

 

 

173

 

 

 

283

 

Issuance of common stock, $0.01 par value, in connection with payment to consultant

 

 

38

 

 

 

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

7

 


AGENUS INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2019

 

Note A - Business, Liquidity and Basis of Presentation

Agenus Inc. (including its subsidiaries, collectively referred to as “Agenus,” the “Company,” “we,” “us,” and “our”) is a clinical-stage immuno-oncology (“I-O”) company with a pipeline of immune modulating antibodies, vaccines, adjuvants and adoptive cell therapies dedicated to becoming a leader in the discovery and development of innovative combination therapies and committed to bringing effective medicines to patients with cancer. Our business is designed to drive success in I-O through speed, innovation, and effective combination therapies. In addition to a diverse pipeline, we have assembled fully integrated capabilities including novel target discovery, antibody generation, cell line development, and good manufacturing practice (“GMP”) manufacturing. We believe that these fully integrated capabilities enable us to produce novel candidates on timelines that are shorter than the industry standard.  Leveraging our science and capabilities, we have forged important partnerships to advance our innovation.  

We are developing a comprehensive I-O portfolio driven by the following platforms and programs, which we intend to utilize individually and in combination:

 

our antibody discovery platforms, including our Retrocyte Display™, SECANT® yeast display, and phage display technologies designed to drive the discovery of future CPM antibody candidates;

 

our antibody candidate programs, including our CPM programs;

 

our vaccine programs, including Prophage™, AutoSynVax™ and PhosPhoSynVax ™;  

 

our saponin-based vaccine adjuvants, principally our QS-21 Stimulon® adjuvant, or QS-21 Stimulon; and

 

our cell therapy subsidiary, AgenTus Therapeutics, Inc. which is designed to drive the discovery of future adoptive cell therapy, or “living drugs” (CAR-T and TCR) programs.

Our business activities include product research and development, intellectual property prosecution, manufacturing, regulatory and clinical affairs, corporate finance and development activities, and support of our collaborations. Our product candidates require clinical trials and approvals from regulatory agencies, as well as acceptance in the marketplace. Part of our strategy is to develop and commercialize some of our product candidates by continuing our existing arrangements with academic and corporate collaborators and licensees and by entering into new collaborations.

Our cash and cash equivalents at March 31, 2019 were $158.3 million, an increase of $105.3 million from December 31, 2018.

The following table outlines our quarter end cash and cash equivalents balances and the changes therein (in millions).

 

 

 

Quarter Ended

 

 

 

March 31, 2019

 

Cash and cash equivalents

 

$

158.3

 

Increase in cash and cash equivalents

 

$

105.3

 

Cash provided by operating activities

 

$

76.6

 

Reported net income

 

$

17.4

 

 We have incurred significant losses since our inception. As of March 31, 2019, we had an accumulated deficit of $1.2 billion. Since our inception, we have successfully financed our operations through the sale of equity and assets, notes, corporate partnerships, and interest income. We believe that, based on our current plans and activities, our cash on-hand will be sufficient to satisfy our liquidity requirements for more than one year from when these financial statements were issued. We continue to monitor the likelihood of success of our key initiatives and are prepared to discontinue funding of such activities if they do not prove to be feasible, restrict capital expenditures and/or reduce the scale of our operations.

Our future liquidity needs will be determined primarily by the success of our operations with respect to the progression of our product candidates and key development and regulatory events in the future. Potential sources of additional funding include: (1) pursuing collaboration, out-licensing and/or partnering opportunities for our portfolio programs and product candidates with one or more third parties, (2) renegotiating third party agreements, (3) selling assets, (4) securing additional debt financing and/or (5) selling equity securities. Our ability to address our future liquidity needs will largely be determined by the success of our product candidates and key development and regulatory events and our decisions in the future.

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The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete annual consolidated financial statements. In the opinion of our management, the condensed consolidated financial statements include all normal and recurring adjustments considered necessary for a fair presentation of our financial position and operating results. All significant intercompany transactions and accounts have been eliminated in consolidation. Operating results for the three months ended March 31, 2019, are not necessarily indicative of the results that may be expected for the year ending December 31, 2019. For further information, refer to our consolidated financial statements and footnotes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the Securities and Exchange Commission (the “SEC”) on March 18, 2019.

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances. Actual results could differ materially from those estimates.

For our foreign subsidiaries the local currency is the functional currency. Assets and liabilities of our foreign subsidiaries are translated into U.S. dollars using rates in effect at the balance sheet date while revenues and expenses are translated into U.S. dollars using average exchange rates during the period. The cumulative translation adjustment resulting from changes in exchange rates are included in the consolidated balance sheets as a component of accumulated other comprehensive loss in total stockholders’ deficit.

 

Note B - Summary of Significant Accounting Policies

Except as detailed below, there have been no material changes to our significant accounting policies during the three months ended March 31, 2019, as compared to the significant accounting policies disclosed in Note 2 of the Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Leases

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-02, Leases (Topic 842) (“ASC 842”) which supersedes Topic 840, Leases (“ASC 840”). We adopted ASC 842 on January 1, 2019 using the alternative transition method and recorded a cumulative effect adjustment to beginning retained earnings without restating prior periods. Accordingly, all financial information and disclosures for periods before January 1, 2019 continue to be presented under the requirements of ASC 840. We elected the package of practical expedients which allowed us to carry forward our historical lease classification, our assessment of whether a contract is or contains a lease and our initial direct costs for any leases that existed prior to adoption of the new standard.

At the inception of an agreement, we determine whether the contract contains a lease. If a lease is identified in an arrangement, we recognize a right-of-use asset and liability on our consolidated balance sheet and determine whether the lease should be classified as a finance or operating lease. We have elected not to recognize assets or liabilities for leases with lease terms of 12 months or less.

A lease qualifies as a finance lease if any of the following criteria are met at the inception of the lease: (i) there is a transfer of ownership of the leased asset by the end of the lease term, (ii) we hold an option to purchase the leased asset that we are reasonably certain to exercise, (iii) the lease term is for a major part of the remaining economic life of the leased asset, (iv) the present value of the sum of lease payments equals or exceeds substantially all of the fair value of the leased asset, or (v) the nature of the leased asset is specialized to the point that it is expected to provide the lessor no alternative use at the end of the lease term. All other leases are recorded as operating leases.

Finance and operating lease right-of-use assets and liabilities are recognized at the lease commencement date. Lease liabilities are recognized as the present value of the lease payments over the lease term using the discount rate implicit in the lease. If the implicit rate is not readily determinable, as is the case with all our current leases, we utilize our incremental borrowing rate at the lease commencement date. Right-of use assets are recognized based on the amount of the lease liability, adjusted for any advance lease payments paid, initial direct costs incurred or lease incentives received prior to commencement. Right-of-use assets are subject to evaluation for impairment or disposal on a basis consistent with other long-lived assets.

Operating lease payments are expensed using the straight-line method as an operating expense over the lease term, unless the right-of-use asset reflects impairment. We will then recognize the amortization of the right-of-use asset on a straight-line basis over the remaining lease term with rent expense still included in operating expense in our condensed consolidated statement of operations.

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Finance lease assets are amortized to depreciation expense using the straight-line method over the shorter of the useful life of the related asset or the lease term, unless the lease includes a provision that either (i) results in the transfer of ownership of the underlying asset at the end of the lease term or (ii) includes a purchase option whose exercise is reasonably certain. In either of these instances, the right-of-use asset is amortized over the useful life of the underlying asset. Finance lease payments are bifurcated into (i) a portion that is recorded as imputed interest expense and (ii) a portion that reduces the finance lease liability.

We do not separate lease and non-lease components for any of our current asset classes when determining which lease payments to include in the calculation of its lease assets and liabilities. Variable lease payments are expensed in the period incurred. If a lease includes an option to extend or terminate the lease, we reflect the option in the lease term if it is reasonably certain the option will be exercised. Our right of use assets and lease liabilities generally exclude periods covered by renewal options and include periods covered by early termination options (based on our conclusion that it is not reasonably certain that we will exercise such options).

We account for our sublease from the perspective of a lessor. Our sublease is classified as an operating lease. We record sublease income as a reduction of operating expense.

Operating leases are recorded in “Operating lease right-of-use assets”, “Current portion, operating lease liabilities” and “Operating lease liabilities, net of current portion”, while finance leases are recorded in “Property, plant and equipment, net”, “Other current liabilities” and “Other long-term liabilities” on our condensed consolidated balance sheet.

Impact of Adopting ASC 842 on the Condensed Consolidated Financial Statements

We recorded the following adjustments to our condensed consolidated balance sheet on the date of adoption (in thousands):

 

 

 

As Reported December 31, 2018

 

 

ASC 842 Adjustment

 

 

Adjusted January 1, 2019

 

Condensed Consolidated Balance Sheet Data:

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

$

-

 

 

$

5,687

 

 

$

5,687

 

Current portion, operating lease liabilities

 

 

 

 

 

1,510

 

 

 

1,510

 

Other current liabilities

 

 

484

 

 

 

(95

)

 

 

389

 

Operating lease liabilities, net of current portion

 

 

 

 

 

6,216

 

 

 

6,216

 

Other long-term liabilities

 

 

2,773

 

 

 

(1,921

)

 

 

852

 

Accumulated deficit

 

$

(1,177,311

)

 

$

(25

)

 

$

(1,177,336

)

The adoption did not have an impact on our condensed consolidated statement of operations or our condensed consolidated statement of cash flows. See Note L for additional information regarding our leases.

 

 

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Note C - Net Loss Per Share

The following table sets forth the computation of basic and diluted net income (loss) per share (in thousands, except for per share data):

 

 

Three Months Ended March 31,