atnx-10q_20190630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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 Number: 001-38112

 

ATHENEX, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

43-1985966

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

 

 

1001 Main Street, Suite 600

Buffalo, NY

14203

(Address of principal executive offices)

(Zip Code)

 

(716) 427-2950

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Exchange Act:

 

Title of each class

 

Trading Symbol(s)

 

Name of each exchange on which registered

Common Stock, par value $0.001 per share

 

ATNX

 

The Nasdaq Global Select Market

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

 

 

  

Small 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  

 

As of August 5, 2019, the registrant had 77,293,285 shares of common stock, $0.001 par value per share, outstanding.

 

 

 


Table of Contents

 

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

1

Item 1.

 

Financial Statements

 

1

 

 

Condensed Consolidated Balance Sheets (Unaudited)

 

1

 

 

Condensed Consolidated Statements of Operations and Comprehensive Loss (Unaudited)

 

2

 

 

Condensed Consolidated Statement of Stockholders’ Equity (Unaudited)

 

3

 

 

Condensed Consolidated Statements of Cash Flows (Unaudited)

 

4

 

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

5

Item 2.

 

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

 

25

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

37

Item 4.

 

Controls and Procedures

 

37

PART II.

 

OTHER INFORMATION

 

38

Item 1.

 

Legal Proceedings

 

38

Item 1A.

 

Risk Factors

 

38

Item 6.

 

Exhibits

 

93

Signatures

 

95

 

 

 

i


PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements.

ATHENEX, INC. AND SUBSIDIARIES

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

 

$

96,734

 

 

$

49,794

 

Restricted cash - short-term

 

 

25,464

 

 

 

 

Short-term investments

 

 

43,718

 

 

 

57,629

 

Accounts receivable, net of chargebacks and other deductions of $11,691

   and $13,101, respectively, and allowance for doubtful accounts

   of $167 and $9, respectively

 

 

9,564

 

 

 

12,951

 

Inventories

 

 

27,239

 

 

 

28,787

 

Prepaid expenses and other current assets

 

 

46,968

 

 

 

21,658

 

Total current assets

 

 

249,687

 

 

 

170,819

 

Property and equipment, net

 

 

16,306

 

 

 

11,447

 

Goodwill

 

 

37,528

 

 

 

37,495

 

Intangible assets, net

 

 

9,769

 

 

 

10,848

 

Operating lease right-of-use assets, net

 

 

8,983

 

 

 

 

Deferred income tax assets

 

 

 

 

 

486

 

Total assets

 

$

322,273

 

 

$

231,095

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

15,583

 

 

$

12,997

 

Accrued expenses

 

 

75,124

 

 

 

37,718

 

Current portion of operating lease liabilities

 

 

2,923

 

 

 

 

Current portion of long-term debt

 

 

1,685

 

 

 

961

 

Total current liabilities

 

 

95,315

 

 

 

51,676

 

Long-term liabilities:

 

 

 

 

 

 

 

 

Deferred compensation

 

 

2,629

 

 

 

2,825

 

Deferred rent

 

 

 

 

 

2,022

 

Long-term operating lease liabilities

 

 

7,996

 

 

 

 

Long-term debt and finance lease obligations

 

 

49,126

 

 

 

45,803

 

Total liabilities

 

 

155,066

 

 

 

102,326

 

Commitments and contingencies (See Note 16)

 

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

 

Common stock, par value $0.001 per share, 250,000,000 shares authorized at

   June 30, 2019 and December 31, 2018; 78,937,145 and 68,668,986 shares

   issued at June 30, 2019 and December 31, 2018, respectively; 77,264,225

   and 66,996,066 shares outstanding at June 30, 2019 and

   December 31, 2018, respectively

 

 

79

 

 

 

69

 

Additional paid-in capital

 

 

697,285

 

 

 

591,064

 

Accumulated other comprehensive loss

 

 

(114

)

 

 

(656

)

Accumulated deficit

 

 

(510,980

)

 

 

(443,716

)

Less: treasury stock, at cost; 1,672,920 shares at June 30, 2019 and

   December 31, 2018

 

 

(7,406

)

 

 

(7,406

)

Total Athenex, Inc. stockholders' equity

 

 

178,864

 

 

 

139,355

 

Non-controlling interests

 

 

(11,657

)

 

 

(10,586

)

Total stockholders' equity

 

 

167,207

 

 

 

128,769

 

Total liabilities and stockholders' equity

 

$

322,273

 

 

$

231,095

 

 

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

1


ATHENEX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(In thousands, except share and per share data)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Product sales, net

 

$

22,033

 

 

$

11,471

 

 

$

47,196

 

 

$

24,076

 

License fees and consulting revenue

 

 

105

 

 

 

91

 

 

 

210

 

 

 

25,182

 

Grant revenue

 

 

59

 

 

 

3

 

 

 

98

 

 

 

143

 

Total revenue

 

 

22,197

 

 

 

11,565

 

 

 

47,504

 

 

 

49,401

 

Costs and operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of sales

 

 

16,942

 

 

 

9,443

 

 

 

36,844

 

 

 

20,769

 

Research and development expenses

 

 

18,507

 

 

 

26,572

 

 

 

42,982

 

 

 

47,875

 

Selling, general, and administrative expenses

 

 

17,169

 

 

 

12,817

 

 

 

32,357

 

 

 

25,897

 

Total costs and operating expenses

 

 

52,618

 

 

 

48,832

 

 

 

112,183

 

 

 

94,541

 

Operating loss

 

 

(30,421

)

 

 

(37,267

)

 

 

(64,679

)

 

 

(45,140

)

Interest expense (income)

 

 

1,279

 

 

 

(368

)

 

 

2,751

 

 

 

(595

)

Loss before income tax expense (benefit)

 

 

(31,700

)

 

 

(36,899

)

 

 

(67,430

)

 

 

(44,545

)

Income tax expense (benefit)

 

 

405

 

 

 

51

 

 

 

905

 

 

 

(256

)

Net loss

 

 

(32,105

)

 

 

(36,950

)

 

 

(68,335

)

 

 

(44,289

)

Less: net loss attributable to non-controlling interests

 

 

(74

)

 

 

(91

)

 

 

(1,071

)

 

 

(132

)

Net loss attributable to Athenex, Inc.

 

$

(32,031

)

 

$

(36,859

)

 

$

(67,264

)

 

$

(44,157

)

Unrealized (loss) gain on investment, net of income taxes

 

 

(83

)

 

 

75

 

 

 

(80

)

 

 

40

 

Foreign currency translation adjustment, net of income taxes

 

 

(446

)

 

 

(641

)

 

 

622

 

 

 

77

 

Comprehensive loss

 

$

(32,560

)

 

$

(37,425

)

 

$

(66,722

)

 

$

(44,040

)

Net loss per share attributable to Athenex, Inc. common

   stockholders, basic and diluted (See Note 13)

 

$

(0.44

)

 

$

(0.58

)

 

$

(0.96

)

 

$

(0.71

)

Weighted-average shares used in computing net loss per share

   attributable to Athenex, Inc. common stockholders, basic and

   diluted (See Note 13)

 

 

73,114,392

 

 

 

63,310,219

 

 

 

70,079,771

 

 

 

62,487,328

 

 

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

.

 

2


ATHENEX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

(In thousands, except share data)

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Accumulated

other

 

 

Treasury Stock

 

 

Total

Athenex,

Inc.

 

 

Non-

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

paid-in

capital

 

 

Accumulated

deficit

 

 

comprehensive

income (loss)

 

 

Shares

 

 

Amount

 

 

stockholders'

equity

 

 

controlling

interests

 

 

stockholders'

equity

 

Balance at January 1, 2018

 

 

59,894,362

 

 

$

60

 

 

$

423,805

 

 

$

(326,276

)

 

$

(146

)

 

 

(1,672,920

)

 

$

(7,406

)

 

$

90,037

 

 

$

685

 

 

$

90,722

 

Sale of common stock, net of costs and discounts of

   $4,611

 

 

4,765,000

 

 

 

4

 

 

 

68,051

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

68,055

 

 

 

 

 

 

68,055

 

Stock-based compensation cost

 

 

 

 

 

 

 

 

2,161

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,161

 

 

 

 

 

 

2,161

 

Restricted stock expense

 

 

 

 

 

 

 

 

540

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

540

 

 

 

 

 

 

540

 

Stock options and warrants exercised

 

 

289,487

 

 

 

1

 

 

 

1,262

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,263

 

 

 

 

 

 

1,263

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(7,298

)

 

 

 

 

 

 

 

 

 

 

 

(7,298

)

 

 

(41

)

 

 

(7,339

)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

683

 

 

 

 

 

 

 

 

 

683

 

 

 

 

 

 

683

 

Balance at March 31, 2018 (unaudited)

 

 

64,948,849

 

 

 

65

 

 

 

495,819

 

 

 

(333,574

)

 

 

537

 

 

 

(1,672,920

)

 

 

(7,406

)

 

 

155,441

 

 

 

644

 

 

 

156,085

 

Stock-based compensation cost

 

 

 

 

 

 

 

 

3,081

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,081

 

 

 

 

 

 

3,081

 

Vesting of restricted stock

 

 

210,000

 

 

 

 

 

 

462

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

462

 

 

 

 

 

 

462

 

Stock options and warrants exercised

 

 

27,630

 

 

 

 

 

 

296

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

296

 

 

 

 

 

 

296

 

Research and development licensing fee satisfied with

   stock

 

 

107,181

 

 

 

 

 

 

2,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,000

 

 

 

 

 

 

2,000

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(36,859

)

 

 

 

 

 

 

 

 

 

 

 

(36,859

)

 

 

(91

)

 

 

(36,950

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(566

)

 

 

 

 

 

 

 

 

(566

)

 

 

 

 

 

(566

)

Balance at June 30, 2018 (unaudited)

 

 

65,293,660

 

 

$

65

 

 

$

501,658

 

 

$

(370,433

)

 

$

(29

)

 

 

(1,672,920

)

 

$

(7,406

)

 

$

123,855

 

 

$

553

 

 

$

124,408

 

 

 

 

Common Stock

 

 

Additional

 

 

 

 

 

 

Accumulated

other

 

 

Treasury Stock

 

 

Total

Athenex,

Inc.

 

 

Non-

 

 

Total

 

 

 

Shares

 

 

Amount

 

 

paid-in

capital

 

 

Accumulated

deficit

 

 

comprehensive

income (loss)

 

 

Shares

 

 

Amount

 

 

stockholders'

equity

 

 

controlling

interests

 

 

stockholders'

equity

 

Balance at January 1, 2019

 

 

68,668,986

 

 

$

69

 

 

$

591,064

 

 

$

(443,716

)

 

$

(656

)

 

 

(1,672,920

)

 

$

(7,406

)

 

$

139,355

 

 

$

(10,586

)

 

$

128,769

 

Stock-based compensation cost

 

 

 

 

 

 

 

 

1,693

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,693

 

 

 

 

 

 

1,693

 

Stock options exercised

 

 

49,632

 

 

 

 

 

 

278

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

278

 

 

 

 

 

 

278

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(35,233

)

 

 

 

 

 

 

 

 

 

 

 

(35,233

)

 

 

(997

)

 

 

(36,230

)

Other comprehensive income, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,071

 

 

 

 

 

 

 

 

 

1,071

 

 

 

 

 

 

1,071

 

Balance at March 31, 2019 (unaudited)

 

 

68,718,618

 

 

 

69

 

 

 

593,035

 

 

 

(478,949

)

 

 

415

 

 

 

(1,672,920

)

 

 

(7,406

)

 

 

107,164

 

 

 

(11,583

)

 

 

95,581

 

Sale of common stock, net of costs of $54

 

 

10,033,362

 

 

 

10

 

 

 

100,309

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

100,319

 

 

 

 

 

 

100,319

 

Stock-based compensation cost

 

 

92,723

 

 

 

 

 

 

3,382

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,382

 

 

 

 

 

 

3,382

 

Stock options exercised

 

 

92,442

 

 

 

 

 

 

559

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

559

 

 

 

 

 

 

559

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(32,031

)

 

 

 

 

 

 

 

 

 

 

 

(32,031

)

 

 

(74

)

 

 

(32,105

)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(529

)

 

 

 

 

 

 

 

 

(529

)

 

 

 

 

 

(529

)

Balance at June 30, 2019 (unaudited)

 

 

78,937,145

 

 

$

79

 

 

$

697,285

 

 

$

(510,980

)

 

$

(114

)

 

 

(1,672,920

)

 

$

(7,406

)

 

$

178,864

 

 

$

(11,657

)

 

$

167,207

 

 

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

 

 

3


 

ATHENEX, INC. AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited)

(In thousands)

 

 

 

Six Months Ended June 30,

 

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(68,335

)

 

$

(44,289

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,807

 

 

 

1,665

 

Stock-based compensation expense

 

 

5,075

 

 

 

6,244

 

Amortization of debt discount

 

 

513

 

 

 

 

Deferred rent expense

 

 

 

 

 

322

 

Gain on disposal of assets

 

 

 

 

 

(62

)

Research and development license fees settled with convertible bond and stock

 

 

 

 

 

2,000

 

Deferred income taxes

 

 

486

 

 

 

(295

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivables, net

 

 

3,387

 

 

 

3,330

 

Prepaid expenses and other assets

 

 

(25,310

)

 

 

(4,259

)

Inventories

 

 

1,548

 

 

 

(5,242

)

Accounts payable and accrued expenses

 

 

43,056

 

 

 

2,557

 

Net cash used in operating activities

 

 

(37,773

)

 

 

(38,029

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(4,891

)

 

 

(1,635

)

Payments for licenses

 

 

(4,175

)

 

 

 

Purchases of short-term investments

 

 

(43,461

)

 

 

(71,090

)

Sales and maturities of short-term investments

 

 

57,291

 

 

 

16,172

 

Net cash provided by (used in) investing activities

 

 

4,764

 

 

 

(56,553

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from sale of stock

 

 

100,373

 

 

 

72,666

 

Proceeds from issuance of debt

 

 

3,649

 

 

 

 

Costs incurred related to the sale of stock

 

 

(54

)

 

 

(4,611

)

Proceeds from exercise of stock options

 

 

837

 

 

 

1,559

 

Repayment of finance lease obligations and long-term debt

 

 

(107

)

 

 

(515

)

Net cash provided by financing activities

 

 

104,698

 

 

 

69,099

 

Net increase (decrease) in cash, cash equivalents, and restricted cash

 

 

71,689

 

 

 

(25,483

)

Cash, cash equivalents, and restricted cash, beginning of period

 

 

49,794

 

 

 

39,284

 

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

 

 

715

 

 

 

267

 

Cash, cash equivalents, and restricted cash, end of period

 

$

122,198

 

 

$

14,068

 

Supplemental cash flow disclosures

 

 

 

 

 

 

 

 

Interest paid

 

$

2,471

 

 

 

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Accrued purchases of property and equipment

 

$

1,174

 

 

$

133

 

Cost of equity raise in accounts payable and accrued expenses

 

$

 

 

$

1,067

 

Common stock issued in lieu of licensing cash payment

 

$

 

 

$

2,000

 

Right-of-use assets recognized in exchange for new operating lease obligations

 

$

583

 

 

$

 

 

 

 

 

 

 

 

 

 

 

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

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Athenex, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Company and Nature of Business

Organization and Description of Business

Athenex, Inc. and subsidiaries (the “Company” or “Athenex”), originally under the name Kinex Pharmaceuticals LLC (“Kinex”), formed in November 2003, commenced operations on February 5, 2004, and operated as a limited liability company until it was incorporated in the State of Delaware under the name Kinex Pharmaceuticals, Inc. on December 31, 2012. The Company changed its name to Athenex, Inc. on August 26, 2015.

Athenex is a global biopharmaceutical company dedicated to the discovery, development and commercialization of novel therapies for the treatment of cancer. The Company’s mission is to improve the lives of cancer patients by creating more effective, safer and tolerable treatments. The Company’s current clinical pipeline is derived from Orascovery, Src Kinase Inhibition, T-cell receptor-engineered T-cells (TCR-T), and Arginine deprivation therapy research platforms. The Company has assembled a leadership team and has established global operations across the pharmaceutical value chain to execute its mission to become a global leader in bringing innovative cancer treatments to the market and improve health outcomes. The Company’s primary activities since inception have been conducting research and development activities through corporate collaborators, in-licensing and out-licensing pharmaceutical compounds and technology, conducting preclinical and clinical testing, recruiting personnel, identifying and evaluating additional drug candidates for potential in-licensing or acquisition, and raising capital to support development activities. The Company also conducts commercial sales of specialty products through its wholly-owned subsidiary, Athenex Pharmaceutical Division (“APD”), and 503B products through its wholly-owned subsidiary, Athenex Pharma Solutions (“APS”).  

Follow-On Offering

In January 2018, the Company completed an underwritten public offering of 4,300,000 shares of its common stock. The Company granted the underwriters a 30-day option to purchase up to an additional 645,000 shares of common stock. In February 2018, the underwriters partially exercised their option, purchasing an additional 465,000 shares of common stock. All shares were offered by the Company at a price of $15.25 per share. The aggregate net proceeds were $68.1 million, net of underwriting discounts and commissions and offering expenses of $4.6 million.

Debt and Equity Offering

On July 3, 2018, the Company closed a privately placed debt and equity financing deal with Perceptive Advisors LLC and its affiliates (“Perceptive”) for gross proceeds of $100.0 million and received aggregate net proceeds of $97.1 million, net of fees and offering expenses. The Company entered into a 5-year senior secured loan for $50.0 million of this financing and issued 2,679,528 shares of its common stock at a purchase price of $18.66 per share for the remaining $50.0 million. The loan matures on the fifth anniversary from the closing date and bears interest at a floating per annum rate equal to London Interbank Offering Rates (“LIBOR”) (with a floor of 2.0%) plus 9.0%. The Company is required to make monthly interest-only payments with a bullet payment of the principal at maturity. The loan agreement contains specified financial maintenance covenants. In connection with the loan agreement, the Company granted Perceptive a warrant for the purchase of 425,000 shares of common stock at a purchase price of $18.66 per share. This was accounted for as a detachable warrant at its fair value and is recorded as an increase to additional paid-in-capital on the condensed consolidated statement of stockholders’ equity.

Private Placement

On May 7, 2019, the Company closed a private placement with Perceptive Life Sciences Master Fund, Ltd., Avoro Capital Advisors (formerly known as venBio Select Fund LLC), OrbiMed Partners Master Fund Limited and the Biotech Growth Trust PLC(combined known as OrbiMed), (collectively, the “Investors”), pursuant to which the Company sold an aggregate of 10 million shares of its common stock to the Investors at a purchase price of $10.0 per share for aggregate gross proceeds of $100.0 million, before deducting offering expenses. These shares were subsequently registered with the Securities and Exchange Commission on July 23, 2019.

Significant Risks and Uncertainties

The Company has incurred operating losses since its inception and, as a result, as of June 30, 2019 and December 31, 2018 had an accumulated deficit of $511.0 million and $443.7 million, respectively. As of June 30, 2019, the Company had $165.9 million of cash, cash equivalents, restricted cash, and short-term investments. Operations have been funded primarily through the sale of common stock

5


 

and, to a lesser extent, from convertible bond financing, a senior secured loan, revenue, and grant funding. The Company will require significant additional funds to conduct clinical trials and to fund its operations. There can be no assurances, however, that additional funding will be available on favorable terms, or at all. If adequate funds are not available, the Company may be required to delay, modify, or terminate its research and development programs or reduce its planned commercialization efforts. The Company believes that it will be able to obtain additional working capital through equity financings or other arrangements to fund operations, including additional public offerings; however, there can be no assurance that such additional financing, if available, can be obtained on terms acceptable to the Company. If the Company is unable to obtain such additional financing, the Company will need to reevaluate future operating plans and might delay, modify, or terminate its research and development programs or reduce its planned commercialization efforts. Accordingly, there is substantial doubt regarding the Company’s ability to continue as a going concern.

These condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of the business. The Company’s recurring losses from operations and negative cash flows from operations have raised substantial doubt regarding its ability to continue as a going concern. The condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

The Company has a senior secured loan agreement which contains various covenants. A breach of any of these covenants could result in a default. If a default under this loan agreement is not cured or waived, the default could result in the acceleration of debt, which could require the Company to repurchase or repay the debt in full prior to the date it is otherwise due. If the Company defaults, the lender may seek repayment through the Company’s subsidiary guarantors or by executing on the security interest granted pursuant to the loan agreement.

The Company is subject to a number of risks similar to other biopharmaceutical companies, including, but not limited to, the lack of available capital, possible failure of preclinical testing or clinical trials, inability to obtain marketing approval of product candidates, competitors developing new technological innovations, unsuccessful commercialization strategy and launch plans for its proprietary drug candidates, market acceptance of the Company’s products, and protection of proprietary technology. If the Company does not successfully commercialize any of its product candidates, it will be unable to generate sufficient product revenue and might not, if ever, achieve profitability and positive cash flow.

2. Summary of Significant Accounting Policies

Basis of Presentation and Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information (Accounting Standards Codification (“ASC”) 270, Interim Reporting) and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these financial statements do not include all of the information necessary for a full presentation of financial position, results of operations, and cash flows in conformity with GAAP. In the opinion of management, the condensed consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the results of the Company for the periods presented. These condensed consolidated financial statements reflect the accounts and operations of the Company and those of its subsidiaries in which the Company has a controlling financial interest. Intercompany transactions and balances have been fully eliminated in consolidation.

Results of the operations for the three and six months ended June 30, 2019 are not necessarily indicative of the results expected for the year ending December 31, 2019, or for any other future annual or interim period. These condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, filed with the Securities and Exchange Commission (“SEC”) on March 11, 2019.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements and the reported amount of revenue and expenses during the reporting period. Such management estimates include those relating to assumptions used in clinical research accruals, chargebacks, allowance for doubtful accounts, inventory reserves, income taxes, the estimated useful life and recoverability of long-lived assets, and the valuation of stock-based awards. Actual results could differ from those estimates.

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