UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from __________to__________
Commission File No.
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
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(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act:
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.
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Large accelerated filer | ☐ | Accelerated filer | ☐ | |
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Emerging growth company |
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As of May 2, 2022, the registrant had
XOMA CORPORATION
FORM 10-Q
TABLE OF CONTENTS
GLOSSARY OF TERMS AND ABBREVIATIONS
Abbreviations |
| Definition |
2018 Common Stock ATM Agreement | At The Market Issuance Sales Agreement with HCW dated December 18, 2018 | |
2021 Series B Preferred Stock ATM Agreement | At The Market Issuance Sales Agreement with B. Riley dated August 5, 2021 | |
‘40 Act | Investment Company Act of 1940 | |
ACA | The Patient Protection and Affordable Care Act of 2010, as amended by the Health Care and Education Reconciliation Act of 2010 | |
Affimed | Affimed N.V. | |
Affitech | Affitech Research AS | |
Affitech CPPA | the Company's Commercial Payment Purchase Agreement with Affitech dated October 6, 2021 | |
Agenus | Agenus, Inc. and certain affiliates | |
Agenus RPA | the Company's Royalty Purchase Agreement with Agenus dated September 20, 2018 | |
Anti-TGFβ Antibody License Agreement | the Company's License Agreement with Novartis dated September 30, 2015 | |
Aronora | Aronora, Inc. | |
Aronora RPA | the Company's Royalty Purchase Agreement with Aronora dated April 7, 2019 | |
AstraZeneca | AstraZeneca plc | |
ASC | Accounting Standards Codification | |
ASC 606 | ASC Topic 606, Revenue from Contracts with Customers | |
Bayer | Bayer Pharma AG | |
Bioasis | Bioasis Technologies, Inc. and certain affiliates | |
Bioasis RPA | the Company's Royalty Purchase Agreement with Bioasis dated February 25, 2019 | |
BLA | Biologic License Application | |
Black-Scholes Model | Black-Scholes Option Pricing Model | |
B. Riley | B. Riley Securities, Inc. | |
BVF | Biotechnology Value Fund, L.P. | |
CCPA | California Consumer Privacy Act of 2018, collectively the Act and its regulations | |
CARES | Coronavirus Aid, Relief, and Economic Security | |
cGMP | current Good Manufacturing Processes | |
Chiesi | Chiesi Farmaceutici S.p.A. | |
Chiron | Chiron Corporation | |
Chiron Collaboration Agreement | the Company's Collaboration Agreement with Chiron dated February 27, 2004, as amended in May 2005, July 2008 and September 2015 | |
Company | XOMA Corporation, including subsidiaries | |
CPPA | Commercial Payment Purchase Agreement | |
CPRA | California Privacy Rights Act | |
EMA | European Medicines Agency | |
ESPP | 2015 Employee Stock Purchase Plan, as amended | |
EU | European Union | |
FCPA | U.S. Foreign Corrupt Practices Act of 1977, as amended | |
FDA | U.S. Food and Drug Administration | |
GAAP | Generally accepted accounting principles | |
G&A | General and administrative | |
GDPR | General Data Protection Regulation | |
Gevokizumab License Agreement | the Company's License Agreement with Novartis dated August 24, 2017 | |
HCRP | Healthcare Royalty Partners II, L.P. |
1
HCW | H.C. Wainwright & Co., LLC | |
HIPAA | Federal Health Insurance Portability and Accountability Act of 1996 | |
ICE® | Innate cell engager | |
Janssen | Janssen Biotech, Inc. | |
Kuros | Kuros Biosciences AG, Kuros US LLC and Kuros Royalty Fund (US) LLC, collectively | |
Kuros RPA | the Company's Royalty Purchase Agreement with Kuros dated July 14, 2021 | |
Merck | Merck Sharp & Dohme Corp | |
NDA | New Drug Application | |
NOL | net operating loss | |
Novartis | Novartis Pharma AG, Novartis International Pharmaceutical Ltd., Novartis Institutes for Biomedical Research, Inc. and/or Novartis Vaccines and Diagnostics, Inc. | |
Novartis Note Agreement | the secured note agreement with Novartis (previously Chiron) dated May 26, 2005, as amended | |
Novartis Note | the note with Novartis pursuant to the Novartis Note Agreement | |
Ology Bioservices | Ology Bioservices Inc. (formerly Nanotherapeutics Inc., now a wholly owned subsidiary of National Resilience, Inc.) | |
Palo | Palobiofarma, S.L. | |
Palo RPA | the Company's Royalty Purchase Agreement with Palo dated September 26, 2019 | |
Pfizer | Pfizer, Inc. | |
R&D | Research and development | |
Retention Plan | Retention and Severance Plan dated March 31, 2022 | |
Rezolute | Rezolute, Inc., formerly Antria Bio | |
Rezolute License Agreement | the Company's License Agreement with Rezolute dated December 6, 2017, as amended in March 2018, January 2019 and March 2020 | |
RPA | Royalty Purchase Agreement | |
Roche | F. Hoffmann-La Roche AG | |
SEC | U.S. Securities and Exchange Commission | |
Second Bioasis RPA | the Company's Royalty Purchase Agreement with Bioasis dated November 2, 2020 | |
Series A Preferred Stock | the 8.625% Series A cumulative, perpetual preferred stock issued in December 2020 | |
Series B Preferred Stock | the 8.375% Series B cumulative, perpetual preferred stock issued in April 2021 | |
Series A and Series B Preferred Stock | Series A Preferred Stock and Series B Preferred Stock, collectively | |
Series B Depositary Shares | the depositary shares, each representing 1/1000th interest in a share of Series B Preferred Stock | |
SOX | Sarbanes-Oxley Act of 2002 | |
SVB | Silicon Valley Bank | |
SVB Loan Agreement | the loan and security agreement with SVB dated May 7, 2018, as amended | |
SVB Loan | the loan with SVB pursuant to the SVB Loan Agreement | |
Takeda | Takeda Pharmaceutical Company Limited | |
Takeda Collaboration Agreement | the Company's Collaboration Agreement with Takeda dated November 1, 2006, as amended in February 2007 and February 2009 | |
Viracta | Viracta Therapeutics, Inc. | |
Viracta RPA | the Company's Royalty Purchase Agreement with Viracta dated March 22, 2021 | |
XOMA | XOMA Corporation, a Delaware corporation, including subsidiaries |
2
PART I - FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
XOMA CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
March 31, | December 31, | |||||
| 2022 |
| 2021 | |||
(unaudited) | (Note 1) | |||||
ASSETS | ||||||
Current assets: | ||||||
Cash and cash equivalents | $ | | $ | | ||
Restricted cash | | | ||||
Short-term equity securities | | | ||||
Trade and other receivables, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Property and equipment, net |
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Operating lease right-of-use assets | | | ||||
Long-term royalty and commercial payment receivables |
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Other assets - long term |
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Total assets | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||
Current liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Accrued and other liabilities |
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Income taxes payable |
| — |
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Contingent consideration under RPAs and CPPAs | | | ||||
Operating lease liabilities | | | ||||
Unearned revenue recognized under units-of-revenue method |
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Preferred stock dividend accrual | | | ||||
Total current liabilities |
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Unearned revenue recognized under units-of-revenue method – long-term |
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Long-term operating lease liabilities | — | | ||||
Total liabilities |
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Commitments and Contingencies (Note 9) | ||||||
Stockholders’ equity: | ||||||
Preferred Stock, $ | ||||||
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Convertible preferred stock, |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
| ( |
| ( | ||
Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
(Note 1) The consolidated balance sheet as of December 31, 2021, has been derived from the audited consolidated financial statements as of that date included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
3
XOMA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(unaudited)
(in thousands, except per share amounts)
Three Months Ended | ||||||
March 31, | ||||||
| 2022 |
| 2021 | |||
Revenues: | ||||||
Revenue from contracts with customers | $ | | $ | | ||
Revenue recognized under units-of-revenue method |
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Total revenues |
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Operating expenses: |
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Research and development |
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General and administrative |
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Total operating expenses |
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Loss from operations |
| ( |
| ( | ||
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Other (expense) income, net: |
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Interest expense |
| — |
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Other (expense) income, net |
| ( |
| ( | ||
Net loss and comprehensive loss | ( | ( | ||||
Less: accumulated dividends on Series A and Series B preferred stock | ( | ( | ||||
Net loss available to common stockholders, basic and diluted | ( | ( | ||||
Basic and diluted net loss per share available to common stockholders | ( | ( | ||||
Weighted average shares used in computing basic and diluted net loss per share available to common stockholders | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
XOMA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands)
Series A | Series B | Convertible | Additional | Total | ||||||||||||||||||||||||
Preferred Stock | Preferred Stock | Preferred Stock | Common Stock | Paid-In | Accumulated | Stockholders’ | ||||||||||||||||||||||
Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity | ||||||||
Balance, December 31, 2021 | | $ | | | $ | — | | $ | — |
| | $ | | $ | | $ | ( | $ | | |||||||||
Exercise of stock options | — |
| — | — |
| — | — |
| — |
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Issuance of common stock related to 401(k) contribution | — |
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| — |
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Stock-based compensation expense | — |
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Preferred stock dividends | — |
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| — | — |
| — |
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Net loss and comprehensive loss | — |
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| — | — |
| — |
| — |
| — |
| — |
| ( |
| ( | |||||||||
Balance, March 31, 2022 | | $ | | | $ | — | | $ | — |
| | $ | | $ | | $ | ( | $ | |
Series A | Convertible | Additional | Total | ||||||||||||||||||||
Preferred Stock | Preferred Stock | Common Stock | Paid-In | Accumulated | Stockholders’ | ||||||||||||||||||
Shares |
| Amount |
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity | |||||||
Balance, December 31, 2020 | | $ | | | $ | — |
| | $ | | $ | | $ | ( | $ | | |||||||
Exercise of stock options | — |
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Exercise of common stock warrants | — |
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Issuance of common stock related to 401(k) contribution | — |
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Stock-based compensation expense | — |
| — | — |
| — |
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Preferred stock dividends | — |
| — | — |
| — |
| — |
| — |
| ( |
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Net loss and comprehensive loss | — |
| — | — |
| — |
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| — |
| — |
| ( |
| ( | |||||||
Balance, March 31, 2021 | | $ | | | $ | — |
| | $ | | $ | | $ | ( | $ | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
5
XOMA CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
Three Months Ended March 31, | ||||||
| 2022 |
| 2021 | |||
Cash flows from operating activities: | ||||||
Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Stock-based compensation expense |
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Common stock contribution to 401(k) |
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Depreciation |
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Amortization of debt issuance costs, debt discount and final payment on debt |
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Non-cash lease expense |
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Change in fair value of equity securities |
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Changes in assets and liabilities: | ||||||
Trade and other receivables, net |
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Income tax receivable | — | | ||||
Prepaid expenses and other assets |
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Accounts payable and accrued liabilities |
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Income taxes payable | ( | — | ||||
Operating lease liabilities | ( | ( | ||||
Unearned revenue recognized under units-of-revenue method |
| ( |
| ( | ||
Other liabilities |
| — |
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Net cash used in operating activities |
| ( |
| ( | ||
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Cash flows from investing activities: | ||||||
Payment of contingent consideration under RPAs and CPPAs | ( | — | ||||
Payments related to purchase of royalty rights and other commercial payment rights |
| — |
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Net cash used in investing activities |
| ( |
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Cash flows from financing activities: | ||||||
Proceeds from exercise of options |
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Taxes paid related to net share settlement of equity awards |
| ( |
| ( | ||
Payment of preferred stock dividends | ( | — | ||||
Principal payments – debt |
| — |
| ( | ||
Payment of preferred and common stock issuance costs | — | ( | ||||
Net cash used in financing activities |
| ( |
| ( | ||
Net decrease in cash and cash equivalents |
| ( |
| ( | ||
Cash and restricted cash at the beginning of the period |
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Cash, cash equivalents and restricted cash at the end of the period | $ | | $ | | ||
Supplemental Cash Flow Information: |
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Cash paid for taxes | $ | | $ | — | ||
Cash paid for interest | $ | — | $ | | ||
Non-cash investing and financing activities: |
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Preferred stock dividend accrual | $ | | $ | | ||
Accrued cost related to issuance of common stock | $ | — | $ | | ||
Accrued cost related to issuance of preferred stock | $ | — | $ | | ||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
XOMA CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Description of Business
XOMA, a Delaware corporation, is a biotech royalty aggregator with a sizable portfolio of economic rights to future potential milestone and royalty payments associated with partnered pre-commercial therapeutic candidates. The Company’s portfolio was built through licensing its proprietary products and platforms from its legacy discovery and development business, combined with the acquisition of rights to future milestones and royalties that the Company has made since the royalty aggregator business model was implemented in 2017. The Company’s drug royalty aggregator business is focused on early to mid-stage clinical assets primarily in Phase 1 and 2 with significant commercial sales potential that are licensed to large-cap partners. The Company expects that most of its future revenue will be based on payments the Company may receive for milestones and royalties related to these programs.
Liquidity and Financial Condition
The Company has incurred significant operating losses and negative cash flows from operations since its inception. As of March 31, 2022, the Company had unrestricted cash and cash equivalents and restricted cash of $
2. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany accounts and transactions among consolidated entities were eliminated upon consolidation. The unaudited condensed consolidated financial statements were prepared in accordance with GAAP in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. As permitted under those rules certain footnotes or other financial information can be condensed or omitted. These financial statements and related disclosures have been prepared with the assumption that users of the interim financial information have read or have access to the audited consolidated financial statements for the preceding fiscal year. Accordingly, these statements should be read in conjunction with the audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 8, 2022.
These 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 only of normal recurring adjustments that are necessary for a fair statement of the Company’s consolidated financial information. The interim results of operations are not necessarily indicative of the results that may be expected for the full year.
Use of Estimates
The preparation of financial statements in conformity with GAAP in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. On an ongoing basis, management evaluates its estimates including, but not limited to, those related to revenue recognition, revenue recognized under the units-of-revenue method, long-term royalty and commercial payment receivables, equity securities, legal contingencies, contingent consideration and stock-based compensation. The Company bases its estimates on historical experience and on various other market-specific and other relevant assumptions that are
7
believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual results may differ significantly from these estimates, such as the Company’s amortization of the payments received from HCRP. Under the contracts with HCRP, the amortization for the reporting period is calculated based on the payments expected to be made by the licensees to HCRP over the term of the arrangement. Any changes to the estimated payments by the licensees to HCRP can result in a material adjustment to revenue previously reported.
The COVID-19 pandemic has resulted in a global slowdown of economic activity which has led to delays and could result in further delays or terminations of some clinical trials underlying the Company’s RPAs. Estimates and assumptions about future events and their effects cannot be determined with certainty and therefore require the exercise of judgment. These estimates may change, as new events occur and additional information is obtained, and are recognized in the condensed consolidated financial statements as soon as they become known. Actual results could differ from those estimates and any such differences may be material to the Company’s financial statements.
Cash, Cash Equivalents and Restricted Cash
Cash consists of bank deposits held in business checking and interest-bearing deposit accounts. As of March 31, 2022, the Company had cash equivalent balances of $
Restricted cash consists of bank deposits held to pay dividends on the Company’s Series A and Series B Preferred Stock.
The Company maintains cash and restricted cash balances at commercial banks. Balances commonly exceed the amount insured by the Federal Deposit Insurance Corporation. The Company has not experienced any losses in such accounts, and management believes that the Company is not exposed to any significant credit risk with respect to such cash and restricted cash.
The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the condensed consolidated balance sheets that sum to the total of the same amounts shown in the condensed consolidated statements of cash flows (in thousands):
Three Months Ended March 31, | Year ended December 31, | ||||
2022 | 2021 | ||||
Cash and cash equivalents | $ | | $ | | |
Restricted cash | | | |||
Total cash, cash equivalents and restricted cash | $ | | $ | |
Revenue Recognition
The Company recognizes revenue from all contracts with customers according to ASC 606, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. 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
8
obligation. The Company only 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, once the contract is determined to be within the scope of ASC 606, the Company assesses the goods or services promised within each contract and 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 obligation based on relative fair values, when (or as) the performance obligation is satisfied.
The Company recognizes revenue from its license and collaboration arrangements and royalties. The terms of the arrangements generally include payment to the Company of one or more of the following: non-refundable, upfront license fees, development, regulatory and commercial milestone payments, and royalties on net sales of licensed products.
License of intellectual property
If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenue from non-refundable, upfront 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, such as transfer of related materials, process and know-how, the Company utilizes judgement to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time. Under the Company’s license agreements, the nature of the combined performance obligation is the granting of licenses to the customers as the other promises are not separately identifiable in the context of the arrangement. Since the Company grants the license to a customer as it exists at the point of transfer and is not involved in any future development or commercialization of the products related to the license, the nature of the license is a right to use the Company’s intellectual property as transferred. As such, the Company recognizes revenue related to the combined performance obligation upon completion of the delivery of the related materials, process and know-how (i.e., at a point in time).
Milestone payments
At the inception of each arrangement that includes development and regulatory 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. The Company uses the most likely amount method for development and regulatory milestone payments.
If it is probable that a significant cumulative 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 revenue 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
9
payable to the Company are recorded as accounts receivable when the Company’s right to consideration is unconditional. 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.
Sale of Future Revenue Streams
The Company has sold its rights to receive certain milestones and royalties on product sales. In the circumstance where the Company has sold its rights to future milestones and royalties under a license agreement and also maintains limited continuing involvement in the arrangement (but not significant continuing involvement in the generation of the cash flows that are due to the purchaser), the Company defers recognition of the proceeds it receives for the sale of milestone or royalty streams and recognizes such unearned revenue as revenue under the units-of-revenue method over the life of the underlying license agreement. Under the units-of-revenue method, amortization for a reporting period is calculated by computing a ratio of the proceeds received from the purchaser to the total payments expected to be made to the purchaser over the term of the agreement, and then applying that ratio to the period’s cash payment.
Estimating the total payments expected to be received by the purchaser over the term of such arrangements requires management to use subjective estimates and assumptions. Changes to the Company’s estimate of the payments expected to be made to the purchaser over the term of such arrangements could have a material effect on the amount of revenues recognized in any particular period.
Stock-Based Compensation
The Company recognizes compensation expense for all stock-based payment awards made to the Company’s employees, consultants and directors that are expected to vest based on estimated fair values. The valuation of stock option awards is determined at the date of grant using the Black-Scholes Model. The Black-Scholes Model requires inputs such as the expected term of the option, expected volatility and risk-free interest rate. To establish an estimate of expected term, the Company considers the vesting period and contractual period of the award and its historical experience of stock option exercises, post-vesting cancellations and volatility. The estimate of expected volatility is based on the Company’s historical volatility. The risk-free rate is based on the yield available on United States Treasury zero-coupon issues corresponding to the expected term of the award. The Company records forfeitures when they occur. The Company records compensation expense for service-based awards on a straight-line basis over the requisite service period, which is generally the vesting period of the award, or to the date on which retirement eligibility is achieved, if shorter.
Equity Securities
The Company entered into a license agreement with Rezolute in December 2017, in which it received shares of common stock from Rezolute (Note 4). Equity investments in Rezolute are classified in the condensed consolidated balance sheets as equity securities. The equity securities are measured at fair value, with changes in fair value recorded in the other (expense) income, net line item of the condensed consolidated statement of operations and comprehensive loss at each reporting period. The Company remeasures its equity investments at each reporting period until such time that the investment is sold or disposed of. If the Company sells an investment, any realized gains and losses on the sale of the securities will be recognized in the condensed consolidated statement of operations and comprehensive loss in the period of sale.
In October 2020, Rezolute completed a
Purchase of Rights to Future Milestones, Royalties and Commercial Payments
The Company has purchased rights to receive a portion of certain future developmental, regulatory and commercial sales milestones, royalties and option fees on sales of products currently in clinical development. The
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Company acquired such rights from various entities and recorded the amount paid for these rights as long-term royalty receivables (Note 5). In addition, the Company may be obligated to make contingent payments related to certain product development milestones, fees upon exercise of options related to future license products and sales-based milestones. The contingent payments are evaluated whether they are freestanding instruments or embedded derivatives. If the contingent payments fall within the scope of ASC 815, the contingent payments are measured at fair value at the inception of the arrangement, and subject to remeasurement to fair value each reporting period. Any changes in the estimated fair value are recorded in the condensed consolidated statement of operations and comprehensive loss.
The Company accounts for milestone and royalty rights related to developmental pipeline products on a non-accrual basis using the cost recovery method. These developmental pipeline products are non-commercialized, non-approved products that require FDA or other regulatory approval, and thus have uncertain cash flows. The Company is not yet able to reliably forecast future cash flows given their pre-commercial stages of development. The related receivable balance is classified as noncurrent since no payments are probable to be received in the near term. Under the cost recovery method, any milestone or royalty payment received is recorded as a direct reduction of the recorded receivable balance. When the recorded receivable balance has been fully collected, any additional amounts collected are recognized as revenue.
The Company reviews public information on clinical trials, press releases and updates from its partners regularly to identify any impairment indicators or changes in expected recoverability of the long-term royalty receivable asset. If an impairment indicator is identified, and the Company determines expected future cash flows discounted to the current period are less than the carrying value of the asset, the Company will record impairment. The impairment will be recognized by reducing the financial asset to an amount that represents the present value of the most recent estimate of future cash flows. No impairment indicators were identified, and
Leases
The Company leases its headquarters office space in Emeryville, California.
The Company determines the initial classification and measurement of its right-of-use assets and lease liabilities at the lease commencement date and thereafter if modified. The lease term includes any renewal options and termination options that the Company is reasonably certain to exercise. The present value of lease payments is determined by using the interest rate implicit in the lease, if that rate is readily determinable; otherwise, the Company uses its incremental borrowing rate. The incremental borrowing rate is determined by using the rate of interest that the Company would pay to borrow on a collateralized basis an amount equal to the lease payments for a similar term and in a similar economic environment. The Company built its incremental borrowing rate starting with the interest rate on its fully collateralized debt and then adjusted it for lease term length.
Rent expense for the operating lease is recognized on a straight-line basis, over the reasonably assured lease term based on the total lease payments and is included in operating expenses in the condensed consolidated statements of operations and comprehensive loss.
The Company has elected the practical expedient to not separate lease and non-lease components. The Company’s non-lease components are primarily related to property maintenance, which varies based on future outcomes, and thus is recognized in rent expense when incurred.
Income Taxes
The Company accounts for income taxes using the liability method under which deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amount which is more likely than not to be realizable.
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The recognition, derecognition and measurement of a tax position is based on management’s best judgment given the facts, circumstances and information available at each reporting date. The Company’s policy is to recognize interest and penalties related to the underpayment of income taxes as a component of income tax expense. To date, there have been
Net Loss per Share Attributable to Common Stockholders
The Company calculates basic and diluted loss per share attributable to common stockholders using the two-class method. The Company’s convertible Series X preferred stocks participate in any dividends declared by the Company on its common stock and are therefore considered to be participating securities. The Company’s Series A and Series B Preferred Stock do not participate in any dividends or distribution by the Company on its common stock and are therefore not considered to be participating securities.
Under the two-class method, net income, as adjusted for any accumulated dividends on Series A and Series B Preferred Stock for the period and any deemed dividends related to beneficial conversion features on convertible preferred stock, if applicable, is allocated to each class of common stock and participating security as if all of the net income for the period had been distributed. Undistributed earnings allocated to participating securities are subtracted from net income in determining net income attributable to common stockholders. During periods of loss, the Company allocates no loss to participating securities because they have no contractual obligation to share in the losses of the Company. Basic net loss per share attributable to common stockholders is then calculated by dividing the net loss attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. All participating securities are excluded from the basic weighted average common shares outstanding.
Diluted net loss per share attributable to common stockholders is based on the weighted average number of shares outstanding during the period, adjusted to include the assumed exercise of certain stock options and warrants for common stock. The calculation of diluted net loss per share attributable to common stockholders requires that, to the extent the average market price of the underlying shares for the reporting period exceeds the exercise price of any outstanding options or warrants, the presumed exercise of such securities are dilutive to net loss per share attributable to common stockholders for the period. Adjustments to the denominator are required to reflect the related dilutive shares. The Company’s Series A and Series B Preferred Stock become convertible upon the occurrence of specific events other than a change in the Company’s share price and therefore, are not included in the diluted shares until the contingency is resolved.
Concentration of Risk
Cash, cash equivalents and receivables are financial instruments which potentially subject the Company to concentrations of credit risk, as well as liquidity risk.
The Company monitors the creditworthiness of its customers to which it grants credit terms in the normal course of business but does not generally require collateral on receivables. For the three months ended March 31, 2022,
Comprehensive Loss
Comprehensive loss is comprised of two components: net loss and other comprehensive loss. Other comprehensive loss refers to gains and losses that under U.S. GAAP are recorded as an element of stockholders’ equity but are excluded from net loss. The Company did not record any transactions within other comprehensive loss in the periods presented and, therefore, the net loss and comprehensive loss were the same for all periods presented.
Accounting Pronouncements Recently Adopted
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—
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Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options. The amendments in ASU No. 2021-04 provide guidance to clarify and reduce diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this ASU No. 2021-04 are effective for all entities for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years, with early adoption permitted, including interim periods within those fiscal years. The Company adopted ASU 2021-04 and related updates on January 1, 2022. The adoption of ASU 2021-04 had no impact on the condensed consolidated financial statements.
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 replaced the incurred loss impairment methodology under current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 requires use of a forward-looking expected credit loss model for accounts receivables, loans, and other financial instruments. Adoption of the standard requires using a modified retrospective approach through a cumulative-effect adjustment to retained earnings as of the effective date to align existing credit loss methodology with the new standard. ASU 2016-13 will be effective for all entities except public companies that are not smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, using a modified retrospective approach. Early adoption is permitted. The Company plans to adopt ASU 2016-13 and related updates on January 1, 2023. The Company is currently evaluating the impact of adopting this ASU on its condensed consolidated financial statements.
3. Condensed Consolidated Financial Statements Details
Equity Securities
As of March 31, 2022 and December 31, 2021, equity securities consisted of an investment in Rezolute’s common stock of $
Accrued and Other Liabilities
Accrued and other liabilities consisted of the following (in thousands):
March 31, | December 31, | |||||
| 2022 |
| 2021 | |||
Accrued legal and accounting fees | | | ||||
Accrued incentive compensation | | | ||||
Accrued payroll and benefits |
| |
| | ||
Other accrued liabilities | | | ||||
Total | $ | | $ | |
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Net Loss Per Share Attributable to Common Stockholders
The following is a reconciliation of the numerator (net loss) and the denominator (number of shares) used in the calculation of basic and diluted net loss per share attributable to common stockholders (in thousands, except per share amounts):
Three Months Ended March 31, | ||||||
|
| 2022 |
| 2021 | ||
Numerator |
|
|
|
| ||
Net loss | $ | ( | $ | ( | ||
Less: Series A accumulated dividends |
| ( |
| ( | ||
Less: Series B accumulated dividends | ( | — | ||||
Net loss available to common stockholders, basic and diluted | ( | ( | ||||
|
|
| ||||
Denominator |
|
|
| |||
Weighted average shares used in computing basic and diluted net loss per share available to common stockholders |
| |
| | ||
Basic and diluted net loss per share available to common stockholders | ( | ( |
Potentially dilutive securities are excluded from the calculation of diluted net loss per share available to common stockholders if their inclusion is anti-dilutive.
The following table shows the weighted-average shares from outstanding securities considered anti-dilutive and therefore excluded from the computation of diluted net loss per share attributable to common stockholders (in thousands):
Three Months Ended March 31, | ||||
| 2022 |
| 2021 | |
Convertible preferred stock | | | ||
Common stock options |
| | | |
Warrants for common stock |
| | | |
Total |
| |
| |
4. Licensing and Other Arrangements
Novartis – Anti-TGFβ Antibody (NIS793)
On September 30, 2015, the Company and Novartis entered into the Anti-TGFβ Antibody License Agreement under which the Company granted Novartis an exclusive, world-wide, royalty-bearing license to the Company’s anti-transforming growth factor beta (“TGFβ”) antibody program (now “NIS793”). Under the terms of the Anti-TGFβ Antibody License Agreement, Novartis has worldwide rights to NIS793 and is responsible for the development and commercialization of antibodies and products containing antibodies arising from NIS793. Unless terminated earlier, the Anti-TGFβ Antibody License Agreement will remain in effect, on a country-by-country and product-by-product basis, until Novartis’ royalty obligations end. The Anti-TGFβ Antibody License Agreement contains customary termination rights relating to material breach by either party. Novartis also has a unilateral right to terminate the Anti-TGFβ Antibody License Agreement on an antibody-by-antibody and country-by-country basis or in its entirety on
The Company concluded that there were multiple promised goods and services under the Anti-TGFβ Antibody License Agreement, including the transfer of license, regulatory services and transfer of materials, process and know-how, which were determined to represent
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The Company was eligible to receive up to a total of $
The Company concluded that the development and regulatory milestone payments are solely dependent on Novartis’ performance and achievement of the specified events. The Company determined that it is not probable that a significant cumulative revenue reversal will not occur in future periods for these future payments. Therefore, the remaining development and regulatory milestones are fully constrained and excluded from the transaction price until the respective milestone is achieved. Any consideration related to commercial milestones (including royalties) will be recognized when the related sales occur as they were determined to relate predominantly to the licenses granted to Novartis and therefore, have also been excluded from the transaction price. At the end of each reporting period, the Company will update its assessment of whether an estimate of variable consideration is constrained and update the estimated transaction price accordingly.
The Company is also eligible to receive royalties on sales of licensed products, which are tiered based on sales levels and range from a mid single-digit percentage rate to up to a low double-digit percentage rate. Novartis’ obligation to pay royalties with respect to a particular product and country will continue for the longer of the date of expiration of the last valid patent claim covering the product in that country, or
On October 21, 2020, the Company earned a $
On October 20, 2021, the Company earned a $
As of March 31, 2022 and December 31, 2021, there are
Novartis – Anti-IL-1β Antibody (VPM087) and IL-1 Beta
On August 24, 2017, the Company and Novartis entered into the Gevokizumab License Agreement under which the Company granted to Novartis an exclusive, worldwide, royalty-bearing license to gevokizumab (“VPM087”), a novel anti-Interleukin-1 (“IL-1”) beta allosteric monoclonal antibody and related know-how and patents. Under the terms of the Gevokizumab License Agreement, Novartis is solely responsible for the development and commercialization of VPM087 and products containing VPM087.
On August 24, 2017, pursuant to a separate agreement (the “IL-1 Target License Agreement”), the Company granted to Novartis non-exclusive licenses to its intellectual property covering the use of IL-1 beta targeting antibodies in the treatment and prevention of cardiovascular disease and other diseases and conditions, and an option to obtain an exclusive license (the “Exclusivity Option”) to such intellectual property for the treatment and prevention of cardiovascular disease.
Under the Gevokizumab License Agreement, the Company received total consideration of $
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common stock, at a purchase price of $
Based on the achievement of pre-specified criteria, the Company is eligible to receive up to $
Unless terminated earlier, the Gevokizumab License Agreement and IL-1 Target License Agreement will remain in effect, on a country-by-country and product-by-product basis, until Novartis’ royalty obligations end. The
The Gevokizumab License Agreement and IL-1 Target License Agreement were accounted for as
At the inception of the arrangement, the Company determined that the transaction price under the arrangement was $
The Company concluded that the development and regulatory milestone payments are solely dependent on Novartis’ performance and achievement of specified events. The Company determined that it is not probable that a significant cumulative revenue reversal will not occur in future periods for these future payments. Therefore, the development and regulatory milestones are fully constrained and excluded from the transaction price until the respective milestone is achieved. Any consideration related to commercial milestones (including royalties) will be recognized when the related sales occur as they were determined to relate predominantly to the licenses granted to Novartis and therefore, have also been excluded from the transaction price. At the end of each reporting period, the Company will update its assessment of whether an estimate of variable consideration is constrained and update the estimated transaction price accordingly.
As of March 31, 2022 and December 31, 2021, there are
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Takeda
On November 1, 2006, the Company entered into the Takeda Collaboration Agreement with Takeda under which the Company agreed to discover and optimize therapeutic antibodies against multiple targets selected by Takeda.
Under the terms of the Takeda Collaboration Agreement, the Company may receive additional milestone payments aggregating up to $
In February 2009, the Company expanded the existing collaboration to provide Takeda with access to multiple antibody technologies, including a suite of research and development technologies and integrated information and data management systems. The Company may receive milestones of up to $
On November 16, 2020, the first patient was dosed in Takeda’s Phase 2 study of mezagitamab and the Company earned a $
The Company earned a development milestone pursuant to the Takeda Collaboration Agreement and recognized $
As of March 31, 2022 and December 31, 2021, there are
Rezolute
On December 6, 2017, the Company entered into a license agreement with Rezolute pursuant to which the Company granted an exclusive global license to Rezolute to develop and commercialize X358 (now “RZ358”) products for all indications. The Company and Rezolute also entered into a common stock purchase agreement pursuant to which Rezolute agreed to issue to the Company, as consideration for receiving the license for RZ358, a certain number of its common stock related to its future financing activities.
Under the terms of the license agreement, Rezolute is responsible for all development, regulatory, manufacturing and commercialization activities associated with RZ358 and is required to make certain development, regulatory and commercial milestone payments to the Company of up to $
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covering the product in that country, or
Pursuant to the license agreement, XOMA is eligible to receive a low single-digit royalty on sales of Rezolute’s other non-RZ358 products from its current programs, including RZ402 which is in Phase 1 clinical testing. Rezolute’s obligation to pay royalties with respect to a particular Rezolute product and country will continue for the longer of
The license agreement contains customary termination rights relating to material breach by either party. Rezolute also has a unilateral right to terminate the license agreement in its entirety on
The license agreement was subsequently amended in 2018, 2019 and 2020. Pursuant to the terms of the license agreement as amended, the Company received a total of $
In January 2022, Rezolute dosed the last patient in its Phase 2b clinical trial for RZ358, which triggered a $
As of March 31, 2022 and December 31, 2021, there were
The Company reassessed the development and regulatory milestones and concluded that such variable consideration is fully constrained and excluded from the transaction price as of March 31, 2022 and December 31, 2021.
Janssen Biotech
The Company and Janssen were parties to a license agreement which was terminated in 2017. In August 2019, the Company and Janssen entered into a new agreement pursuant to which the Company granted a non-exclusive license to Janssen to develop and commercialize certain drug candidates under the XOMA patents and know-how. Under the new agreement, Janssen made a one-time payment of $
The Company concluded that the new agreement should be accounted for separately from any prior arrangements with Janssen and that the license grant is the only performance obligation under the new agreement. The Company recognized the entire one-time payment of $
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The Company concluded that the development and regulatory milestone payments are solely dependent on Janssen’s performance and achievement of specified events and thus it is not probable that a significant cumulative revenue reversal will not occur in future periods for these future payments. Therefore, the development and regulatory milestones are fully constrained and excluded from the transaction price until the respective milestone is achieved. Any consideration related to royalties will be recognized when the related sales occur as they were determined to relate predominantly to the license granted to Janssen and therefore, have also been excluded from the transaction price. At the end of each reporting period, the Company will update its assessment of whether an estimate of variable consideration is constrained and update the estimated transaction price accordingly.
In May 2021, the Company earned a $
As of March 31, 2022 and December 31, 2021, there were
Affimed
In April 2021, the Company and Affimed entered into a contractual agreement, under which the Company is eligible to receive payments from Affimed on potential future commercial sales related to three ICE molecules and preloaded natural killer cells containing the ICE molecules. Additionally, the Company is eligible to receive a milestone upon the first product candidate in each program achieving marketing approval.
The Company concluded that the commercial milestone payments are solely dependent on Affimed’s performance and achievement of specified events. The Company determined that it is not probable that a significant cumulative revenue reversal will not occur in future periods for these future payments. Therefore, the commercial milestones are fully constrained and excluded from the transaction price until the respective milestone is achieved. Any consideration related to commercial milestones (including royalties) will be recognized when the related approvals occur and therefore, have also been excluded from the transaction price. At the end of each reporting period, the Company will update its assessment of whether an estimate of variable consideration is constrained and update the estimated transaction price accordingly.
As of March 31, 2022 and December 31, 2021, there were
Sale of Future Revenue Streams
On December 21, 2016, the Company entered into
The Company classified the proceeds received from HCRP as unearned revenue, to be recognized as revenue under the units-of-revenue method over the life of the license agreements because of the Company’s limited continuing involvement in the Acquisition Agreements. Such limited continuing involvement is related to the Company’s undertaking to cooperate with HCRP in the event of litigation or a dispute related to the license agreements. Because the transaction was structured as a non-cancellable sale, the Company does not have significant continuing involvement in the generation of the cash flows due to HCRP and there are no guaranteed rates of return to HCRP, the Company recorded the total
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proceeds of $
The Company recognized $
As of March 31, 2022, the Company classified $
5. Royalty and Commercial Payment Purchase Agreements
The balance of long-term royalty and commercial payment receivables was $
Royalty Purchase Agreement with Agenus
On September 20, 2018, the Company entered into the Agenus RPA, pursuant to which the Company acquired the right to receive
In addition, the Company acquired the right to receive
Under the terms of the Agenus RPA, the Company paid Agenus $
At the inception of the agreement, the Company recorded $
In November 2020, MK-4830 advanced into Phase 2 development and Agenus earned a $
The Company continues to assess that no further payments are probable to be received under this agreement in the near term. Under the cost recovery method, the Company does not expect to recognize any income related to milestones and royalties received until the purchase price has been fully collected. The Company performed its quarterly impairment assessment and no impairment indicators were identified. Accordingly,
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Royalty Purchase Agreement with Bioasis
On February 25, 2019, the Company entered into the Bioasis RPA, pursuant to which the Company acquired potential future milestone and royalty rights from Bioasis for product candidates that are being developed pursuant to a license agreement between Bioasis and Prothena Biosciences Limited. In addition, the Company was granted options to purchase a
Under the terms of the Bioasis RPA, the Company paid $
At the inception of the agreement, the Company recorded $
On November 2, 2020, the Company entered into the Second Bioasis RPA, pursuant to which the Company acquired potential future milestone and other payments, and royalty rights from Bioasis for product candidates that are being developed pursuant to a research collaboration and license agreement between Bioasis and Chiesi. The Company paid Bioasis $
At the inception of the Second Bioasis RPA, the Company recorded $
Royalty Purchase Agreement with Aronora
On April 7, 2019, the Company entered into the Aronora RPA which closed on June 26, 2019. Under the Aronora RPA, the Company acquired the right to receive future royalties and a portion of upfront, milestone, and option payments (the “Non-Royalties”) related to
Under the terms of the Aronora RPA, the Company paid Aronora a $
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Agreement with SVB (Note 8). The Company was required to make a contingent future cash payment of $
At the inception of the agreement, the Company recorded $
Under the cost recovery method, the Company does not expect to recognize any income related to milestones and royalties received until the purchase price has been fully collected. The Company performed its quarterly impairment assessment and no impairment indicators were identified. Accordingly,
Royalty Purchase Agreement with Palobiofarma
On September 26, 2019, the Company entered into the Palo RPA, pursuant to which the Company acquired the rights to potential royalty payments in low single-digit percentages of aggregate net sales associated with
Under the terms of the Palo RPA, the Company paid Palo a $
At the inception of the agreement, the Company recorded $
Royalty Purchase Agreement with Viracta
On March 22, 2021, the Company entered into the Viracta RPA, pursuant to which the Company acquired the right to receive future royalties, milestones, and other payments related to
At the inception of the Viracta RPA, the Company recorded $
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Royalty Purchase Agreement with Kuros
On July 14, 2021, the Company entered into the Kuros RPA, pursuant to which the Company acquired the rights to
At the inception of the Kuros RPA, the Company recorded $
Commercial Payment Purchase Agreement with Affitech
On October 6, 2021, the Company entered into the Affitech CPPA, pursuant to which, the Company purchased a future stream of commercial payment rights to Roche’s faricimab from Affitech for an upfront payment of $
On January 28, 2022, Genentech, a member of the Roche group, received approval from the FDA to commercialize faricimab (faricimab-svoa) for the treatment of wet, or neovascular, age-related macular degeneration and diabetic macular edema. Roche launched faricimab-svoa during the three months ended March 31, 2022. The Company is eligible to receive a
Under the cost recovery method, the Company does not expect to recognize any income related to future commercial payment receipts until the purchase price has been fully collected. The Company performed its quarterly impairment assessment and no impairment indicators were identified. Accordingly,
6. Fair Value Measurements
The Company records its financial assets and liabilities at fair value. The carrying amounts of certain of the Company’s financial instruments, including cash, trade receivables, net and accounts payable, approximate their fair value due to their short maturities. Fair value is defined as the exchange price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The accounting guidance for fair value establishes a framework for measuring fair value and a fair value hierarchy that prioritizes the inputs used in valuation techniques. The accounting standard describes a fair value hierarchy based on three levels of
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inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value which are the following:
Level 1 – Observable inputs, such as unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2 – Observable inputs, either directly or indirectly, other than quoted prices in active markets for identical assets or liabilities, such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities; therefore, requiring an entity to develop its own valuation techniques and assumptions.
The following tables set forth the Company’s fair value hierarchy for its financial assets and liabilities measured at fair value on a recurring basis as follows (in thousands):
Fair Value Measurements at March 31, 2022 Using | ||||||||||||
Quoted Prices in | Significant Other | Significant | ||||||||||
Active Markets for | Observable | Unobservable | ||||||||||
Identical Assets | Inputs | Inputs | ||||||||||
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total | |||||
Assets: |