nk-10q_20160630.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10‑Q

 

(Mark One)

x

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

For the quarterly period ended June 30, 2016  

OR

o

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: 001-37507

 

NANTKWEST, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

43-1979754

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

3530 John Hopkins Court

San Diego, California

 

92121

(Address of principal executive offices)

 

(Zip Code)

(858) 633-0300

(Registrant’s telephone number, including area code)

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

 

Title of each class

 

Name of each exchange on which registered

Common Stock, $0.0001 par value

 

NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None

 

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  x    No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).    Yes  x    No  o

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

 

Large accelerated filer

¨

Accelerated filer

o

 

 

 

 

Non-accelerated filer

x  (Do not check if a smaller reporting company)

Smaller reporting company

¨

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

As of August 9, 2016, the registrant had 82,311,764 shares of common stock, par value $0.0001 per share, outstanding.

 

 

 

 


TABLE OF CONTENTS

 

 

 

 

 

Page

 

 

 

 

 

Part I – Financial Information

 

 

 

 

 

 

Item 1.

  

Financial Statements

 

1

Item 2.

 

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

 

21

Item 3.

 

Quantitative and Qualitative Disclosures about Market Risk

 

35

Item 4.

 

Controls and Procedures

 

35

 

 

 

 

 

Part II – Other Information

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

37

Item 1A.

 

Risk Factors

 

37

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

74

Item 3.

 

Defaults Upon Senior Securities

 

75

Item 4.

 

Mine Safety Disclosures

 

75

Item 5.

 

Other Information

 

76

Item 6.

 

Exhibits

 

77

 

 

 

-i-


NANTKWEST, INC.

PART I – FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS.

NantKwest, Inc.

Condensed Consolidated Balance Sheets

(in thousands, except for share amounts)

 

 

 

June 30, 2016

 

 

December 31, 2015

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

38,223

 

 

$

175,908

 

Receivables, net, prepaid expenses and other current assets

 

 

4,196

 

 

 

3,322

 

Marketable securities

 

 

175,540

 

 

 

118,310

 

Total current assets

 

 

217,959

 

 

 

297,540

 

Marketable securities, noncurrent

 

 

107,933

 

 

 

55,135

 

Property and equipment, net

 

 

9,507

 

 

 

5,523

 

Intangible assets, net

 

 

6,396

 

 

 

7,292

 

Other assets

 

 

1,140

 

 

 

1,359

 

Total assets

 

$

342,935

 

 

$

366,849

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,303

 

 

$

2,085

 

Accrued expenses

 

 

4,724

 

 

 

2,575

 

Due to related parties

 

 

1,727

 

 

 

1,352

 

Other current liabilities

 

 

291

 

 

 

136

 

Total current liabilities

 

 

10,045

 

 

 

6,148

 

Build-to-suit liability, less current portion

 

 

2,417

 

 

 

2,468

 

Deferred rent

 

 

1,924

 

 

 

845

 

Deferred revenue

 

 

197

 

 

 

228

 

Deferred tax liability

 

 

969

 

 

 

1,165

 

Other liabilities

 

 

26

 

 

 

 

Total liabilities

 

 

15,578

 

 

 

10,854

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 500,000,000 shares authorized; 81,770,436

    and 81,311,686 issued and outstanding as of June 30, 2016 and

    December 31, 2015

 

 

8

 

 

 

8

 

Additional paid-in capital

 

 

651,330

 

 

 

606,555

 

Accumulated other comprehensive income (loss)

 

 

424

 

 

 

(192

)

Accumulated deficit

 

 

(324,405

)

 

 

(250,376

)

Total stockholders’ equity

 

 

327,357

 

 

 

355,995

 

Total liabilities and stockholders’ equity

 

$

342,935

 

 

$

366,849

 

 

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

1


NantKwest, Inc.

Condensed Consolidated Statements of Operations

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

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

 

 

 

 

(Restated)

 

 

 

 

 

 

(Restated)

 

Revenue

 

$

12

 

 

$

91

 

 

$

18

 

 

$

211

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

6,389

 

 

 

2,074

 

 

 

11,344

 

 

 

2,677

 

Selling, general and administrative

 

 

28,588

 

 

 

128,412

 

 

 

55,255

 

 

 

160,030

 

Total operating expenses

 

 

34,977

 

 

 

130,486

 

 

 

66,599

 

 

 

162,707

 

Loss from operations

 

 

(34,965

)

 

 

(130,395

)

 

 

(66,581

)

 

 

(162,496

)

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment income, net

 

 

739

 

 

 

33

 

 

 

1,507

 

 

 

65

 

Change in fair value of warrant liability

 

 

 

 

 

(483

)

 

 

 

 

 

(1,366

)

Other income (expense), net

 

 

1

 

 

 

(48

)

 

 

29

 

 

 

56

 

Total other income (expense)

 

 

740

 

 

 

(498

)

 

 

1,536

 

 

 

(1,245

)

Loss before income taxes

 

 

(34,225

)

 

 

(130,893

)

 

 

(65,045

)

 

 

(163,741

)

Income tax (benefit) expense, net

 

 

(228

)

 

 

 

 

 

(371

)

 

 

1

 

Net loss

 

$

(33,997

)

 

$

(130,893

)

 

$

(64,674

)

 

$

(163,742

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

(0.41

)

 

$

(1.99

)

 

$

(0.79

)

 

$

(2.58

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of shares during the period:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

81,959,248

 

 

 

65,789,041

 

 

 

81,769,964

 

 

 

63,450,609

 

 

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

2


NantKwest, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(in thousands)

(Unaudited)

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

 

 

 

 

 

(Restated)

 

 

 

 

 

 

(Restated)

 

Net loss

 

$

(33,997

)

 

$

(130,893

)

 

$

(64,674

)

 

$

(163,742

)

Other comprehensive income, net of income taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain on available-for-sale securities

 

 

129

 

 

 

 

 

 

646

 

 

 

 

Reclassification of net realized gains on available-for-sale securities

   included in net loss

 

 

(23

)

 

 

 

 

 

(30

)

 

 

 

Total other comprehensive income

 

 

106

 

 

 

 

 

 

616

 

 

 

 

Comprehensive loss

 

$

(33,891

)

 

$

(130,893

)

 

$

(64,058

)

 

$

(163,742

)

 

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

3


NantKwest, Inc.

Condensed Consolidated Statement of Stockholders’ Equity

(in thousands, except for share amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

Common

 

 

Paid-in

 

 

Comprehensive

 

 

Accumulated

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Loss

 

 

Deficit

 

 

Total

 

Balance at December 31, 2015

 

 

81,311,686

 

 

$

8

 

 

$

606,555

 

 

$

(192

)

 

$

(250,376

)

 

$

355,995

 

Exercise of stock options

 

 

1,642,264

 

 

 

 

 

818

 

 

 

 

 

 

 

818

 

Stock-based compensation expense

 

 

 

 

 

 

43,917

 

 

 

 

 

 

 

43,917

 

Vesting of restricted stock units

 

 

24,166

 

 

 

 

 

 

 

 

 

 

 

 

Employee payroll taxes withheld related to vesting of

   restricted stock units

 

 

(4,152

)

 

 

 

 

(32

)

 

 

 

 

 

 

(32

)

Exercise of warrants

 

 

25,072

 

 

 

 

 

41

 

 

 

 

 

 

 

41

 

Change in accounting principle - ASU 2016-09 forfeiture

   adjustment

 

 

 

 

 

 

31

 

 

 

 

 

(31

)

 

 

 

Repurchase of common stock

 

 

(1,228,600

)

 

 

 

 

 

 

 

 

(9,324

)

 

 

(9,324

)

Other comprehensive income, net

 

 

 

 

 

 

 

 

616

 

 

 

 

 

616

 

Net loss

 

 

 

 

 

 

 

 

 

 

(64,674

)

 

 

(64,674

)

Balance at June 30, 2016

 

 

81,770,436

 

 

$

8

 

 

$

651,330

 

 

$

424

 

 

$

(324,405

)

 

$

327,357

 

 

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

4


NantKwest, Inc.

Condensed Consolidated Statements of Cash Flows

(in thousands)

(Unaudited)

 

 

 

For the Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

(Restated)

 

Operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(64,674

)

 

$

(163,742

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

998

 

 

 

986

 

Stock-based compensation expense

 

 

43,917

 

 

 

150,836

 

Deferred income tax benefit

 

 

(373

)

 

 

 

Change in value of warrant liability

 

 

 

 

 

1,366

 

Non-cash interest items

 

 

(516

)

 

 

 

Loss incurred by Inex Bio

 

 

 

 

 

57

 

Loss on disposal of assets

 

 

18

 

 

 

 

Amortization of net premiums on marketable securities

 

 

943

 

 

 

 

Gain on sales of marketable securities

 

 

(69

)

 

 

 

Gain on settlement of note payable

 

 

 

 

 

(133

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(3

)

 

 

100

 

Prepaid and other current assets

 

 

(355

)

 

 

(300

)

Other assets

 

 

(162

)

 

 

(3,592

)

Accounts payable

 

 

84

 

 

 

2,048

 

Accrued expenses and other liabilities

 

 

1,638

 

 

 

2,312

 

Due to related parties

 

 

375

 

 

 

 

Deferred rent

 

 

1,031

 

 

 

 

Deferred revenue

 

 

(9

)

 

 

(100

)

Net cash used in operating activities

 

 

(17,157

)

 

 

(10,162

)

Investing activities:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(2,123

)

 

 

(152

)

Purchase of Inex Bio Inc., net of cash acquired

 

 

 

 

 

(1,818

)

Investment in intangible assets

 

 

 

 

 

(483

)

Purchases of marketable securities

 

 

(165,837

)

 

 

 

Sales/maturities of marketable securities

 

 

55,897

 

 

 

 

Net cash used in investing activities

 

 

(112,063

)

 

 

(2,453

)

Financing activities:

 

 

 

 

 

 

 

 

Proceeds from debt and equity offerings, net of issuance costs

 

 

 

 

 

70,976

 

Payments on notes payable

 

 

 

 

 

(132

)

Proceeds from exercise of stock options

 

 

818

 

 

 

768

 

Proceeds from exercise of warrants

 

 

41

 

 

 

7,134

 

Repurchase of common stock

 

 

(9,324

)

 

 

(4,798

)

Net cash (used in) provided by financing activities

 

 

(8,465

)

 

 

73,948

 

Net decrease in cash and cash equivalents

 

 

(137,685

)

 

 

61,333

 

Cash and cash equivalents, beginning of period

 

 

175,908

 

 

 

59,104

 

Cash and cash equivalents, end of period

 

$

38,223

 

 

$

120,437

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Income taxes

 

$

1

 

 

$

1

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Estimated fair value of building under build-to-suit lease

 

$

 

 

$

2,740

 

Issuance of warrants in Inex Bio, Inc. acquisition

 

$

 

 

$

5,170

 

Lease Incentive

 

$

50

 

 

$

 

Property and equipment purchases included in accounts payable and accrued

   expenses

 

$

2,059

 

 

$

 

Cashless exercise of stock options and warrants

 

$

456

 

 

$

966

 

Unrealized gain on marketable securities

 

$

962

 

 

$

 

 

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

 

5


NantKwest, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except share and per share amounts)

 

 

1. Description of Business and Basis of Presentation

Organization

NantKwest, Inc. (the Company) was incorporated in Illinois on October 7, 2002 under the name ZelleRx Corporation. On January 22, 2010, the Company changed its name to Conkwest, Inc., and on July 10, 2015, the Company changed its name to NantKwest, Inc. In March 2014, the Company redomesticated from the State of Illinois to the State of Delaware and the Illinois Company ceased to exist.  The Company is a biotechnology company headquartered in San Diego, California with certain operations in Culver City, California and Woburn, Massachusetts. The Company is commercially developing targeted direct-acting immunotherapeutic agents for a variety of clinical conditions.

The Company holds the exclusive right to commercialize activated natural killer (aNK) cells, a commercially viable natural killer cell-line, and a variety of genetically modified derivatives capable of killing cancer and virally infected cells. The Company owns corresponding U.S. and foreign composition and methods-of-use patents and applications covering the clinical use of aNK cells as a therapeutic to treat a spectrum of clinical conditions.

The Company also licensed exclusive commercial rights to a portfolio of CD16 bearing aNK cells along with the corresponding U.S. and foreign composition and methods-of-use patents and applications covering the non-clinical use in laboratory testing of monoclonal antibodies as well as clinical use as a therapeutic to treat cancers in combination with antibody products. The Company has licensed or sub-licensed its cell lines and intellectual property to numerous pharmaceutical and biotechnology companies for such non-clinical uses.

The Company retains exclusive worldwide rights to clinical and research data, intellectual property and know-how developed with the Company’s aNK cells, as well as the only clinical grade master cell bank.

Unaudited Interim Financial Information

The accompanying condensed consolidated balance sheet at June 30, 2016, the condensed consolidated statements of operations and comprehensive loss for the three and six months ended June 30, 2016, the condensed consolidated statements of cash flows for the six months ended June 30, 2016, and the condensed consolidated statement of stockholders’ equity for the six months ended June 30, 2016, have been prepared by management of the Company and have not been audited. These financial statements have been prepared on the same basis as the audited consolidated financial statements for the fiscal year ended December 31, 2015 and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the Company’s results for the periods presented. These financial statements should be read in conjunction with the financial statements and notes thereto for the fiscal year ended December 31, 2015 included in the Company’s Annual Report on Form 10-K.  Interim operating results are not necessarily indicative of operating results for the full year. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP).

Principles of Consolidation

The Company’s condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Inex Bio, Inc., and have been prepared in accordance with GAAP.  All intercompany amounts have been eliminated.

Prior Restatement

The Company identified material errors in stock compensation expense, property and equipment and build-to-suit liability balances along with various other immaterial errors during the fourth quarter of fiscal 2015 related to prior periods.  The correction of these errors resulted in the restatement of previously reported unaudited condensed consolidated financial statements for the second and third quarters of fiscal 2015, which were included in the Annual Report on Form 10-K for the year ended December 31, 2015.  Accordingly, within this Quarterly Report on Form 10-Q, the unaudited condensed consolidated statement of operations for the three and six months ended June 30, 2015 and the unaudited condensed consolidated statement of cash flows for the six months ended June 30, 2015 have been labeled Restated.

 

6


Liquidity

As of June 30, 2016, the Company had an accumulated deficit of approximately $324.4 million. The Company also had negative cash flow from operations of approximately $17.2 million during the six months ended June 30, 2016. The Company expects that it will likely need additional capital to further fund development of, and seek regulatory approvals for, its product candidates, and begin to commercialize any approved products.

The Company is currently focused primarily on the development of immunotherapeutic treatments for cancers and debilitating viral infections using targeted cancer killing cell lines, and believes such activities will result in the Company’s continued incurrence of significant research and development and other expenses related to those programs. If the clinical trials for any of the Company’s product candidates fail or produce unsuccessful results and those product candidates do not gain regulatory approval, or if any of the Company’s product candidates, if approved, fails to achieve market acceptance, the Company may never become profitable. Even if the Company achieves profitability in the future, it may not be able to sustain profitability in subsequent periods. The Company intends to cover its future operating expenses through cash and cash equivalents and marketable securities on hand and through a combination of equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. Additional financing may not be available to the Company when needed and, if available, financing may not be obtained on terms favorable to the Company or its stockholders.

While the Company expects its existing cash and cash equivalents and marketable securities will enable it to fund operations and capital expenditure requirements for the foreseeable future, it may not have sufficient funds to reach commercialization. Failure to obtain adequate financing when needed may require the Company to delay, reduce, limit or terminate some or all of its development programs or future commercialization efforts or grant rights to develop and market product candidates that the Company might otherwise prefer to develop and market itself which could adversely affect the Company’s ability to operate as a going concern. If the Company raises additional funds from the issuance of equity securities, substantial dilution to existing stockholders may result. If the Company raises additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict the Company’s ability to operate its business.

2. Summary of Significant Accounting Policies

With the exception of the preclinical and clinical trial accrual, stock repurchases and stock-based compensation policies discussed below, there have been no significant changes to the items that the Company disclosed as its summary of significant accounting policies in the Annual Report on Form 10-K for the year ended December 31, 2015.

Preclinical and Clinical Trial Accruals

As part of the process of preparing the financial statements, the Company is required to estimate expenses resulting from obligations under contracts with vendors, clinical research organizations and consultants.  The financial terms of these contracts vary and may result in payment flows that do not match the periods over which materials or services are provided under such contracts.

The Company estimates clinical trial and research agreement related expenses based on the services performed, pursuant to contracts with research institutions and clinical research organizations and other vendors that conduct clinical trials and research on the Company’s behalf.  In accruing clinical and research related fees, the Company estimates the time period over which services will be performed and activity expended in each period. If the actual timing of the performance of services or the level of effort varies from the estimate, the Company will adjust the accrual accordingly. Payments made to third parties under these arrangements in advance of the receipt of the related services are recorded as prepaid expenses until the services are rendered.

Stock Repurchases

In November 2015, the board of directors approved a share repurchase program (2015 Share Repurchase Program) allowing the CEO or CFO, on behalf of the Company, to repurchase from time to time, in the open market or in privately negotiated transactions, up to $50.0 million of the Company’s outstanding shares of common stock, exclusive of any commissions, markups or expenses.  The timing and amounts of any purchases will be based on market conditions and other factors, including price, regulatory requirements and other corporate considerations. The 2015 Share Repurchase Program does not require the purchase of any minimum number of shares and may be suspended, modified or discontinued at any time without prior notice. The Company expects to finance the purchases with existing cash balances. As it is the intent for the repurchased shares to be retired, the Company has elected to account for the shares repurchased under the constructive retirement method. For shares repurchased in excess of par, the Company will allocate the excess value to accumulated deficit.

7


Stock-Based Compensation

The Company implemented Financial Accounting Standards Board issued Accounting Standard Update 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, as part of the initiative to reduce complexity in accounting standards in this reporting period.  Therefore, the Company is accounting for share-based award forfeitures only as they occur rather than applying an estimated forfeiture rate.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to the valuation of warrants, stock-based compensation, the valuation allowance for deferred tax assets, preclinical and clinical trial accruals, and the valuation of build-to-suit lease assets. The Company bases its estimates on historical experience and on various other market-specific and relevant assumptions that it believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Basic and Diluted Net Loss per Share of Common Stock

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period. Diluted loss per share is computed similarly to basic loss per share except that the denominator is increased to include the number of additional shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.

For all periods presented, potentially dilutive securities are excluded from the computation of fully diluted loss per share as their effect is anti-dilutive. The following table details those securities that have been excluded from the computation of potentially dilutive securities:  

 

 

 

As of  June 30,

 

 

 

2016

 

 

2015

 

Outstanding options

 

 

7,064,002

 

 

 

8,447,209

 

Outstanding restricted stock units

 

 

1,424,772

 

 

 

 

Outstanding warrants

 

 

17,794,544

 

 

 

18,417,078

 

Total

 

 

26,283,318

 

 

 

26,864,287

 

 

 

Amounts in the table above reflect the common stock equivalents of the noted instruments.

Recent Accounting Pronouncements

In February 2016, the FASB issued or ASU 2016-02, Leases (Topic 842) which requires lessees to recognize assets and liabilities for operating leases with lease terms greater than twelve months in the balance sheet. The update also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the impact of the adoption of ASU 2016-02 on its consolidated financial statements and disclosures.

In March 2016, the FASB issued ASU 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, as part of the initiative to reduce complexity in accounting standards. The areas for simplification in ASU 2016-09 involve several aspects of the accounting for employee share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, or classification on the statement of cash flows.  ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years, with early adoption permitted. The Company chose to adopt this ASU in the second quarter of 2016.  There was no material impact on the condensed consolidated financial statements and disclosures.  

8


The Company has adopted the guidance to 1) account for stock-based award forfeitures as they occur rather than apply an estimated forfeiture rate, 2)  recognize the income tax effects of awards in the income statement when the awards vest or are settled, thus eliminating additional paid-in capital pools, 3) repurchase more of an employee’s shares for tax withholding purposes without triggering liability accounting, and 4) elected to adopt the amendments related to the presentation of excess tax benefits on the statement of cash flows using a prospective transition method.

 

 

3. Financial Statement Details

Receivables, Net, Prepaid Expenses and Other Current Assets

As of June 30, 2016 and December 31, 2015, receivables, net, prepaid expenses and other current assets consisted of (in thousands):

 

 

 

June 30, 2016

 

 

December 31, 2015

 

 

 

(Unaudited)

 

 

 

 

 

Prepaid services

 

$

1,537

 

 

$

631

 

Interest receivable - marketable securities

 

 

1,428

 

 

 

911

 

Prepaid license fees

 

 

475

 

 

 

101

 

Prepaid legal fees

 

 

350

 

 

 

350

 

Deposits

 

 

141

 

 

 

 

Due from related parties (Note 7)

 

 

121

 

 

 

217

 

Prepaid insurance

 

 

84

 

 

 

466

 

Prepaid rent

 

 

46

 

 

 

 

Accounts receivable, net

 

 

3

 

 

 

 

Tax refund receivable

 

 

 

 

 

646

 

Other

 

 

11

 

 

 

 

 

 

$

4,196

 

 

$

3,322

 

 

Property and Equipment, Net

As of June 30, 2016 and December 31, 2015, property and equipment consisted of (in thousands):

 

 

 

June 30, 2016

 

 

December 31, 2015

 

 

 

(Unaudited)

 

 

 

 

 

Construction in progress

 

$

7,825

 

 

$

5,136

 

Equipment

 

 

1,021

 

 

 

241

 

Software

 

 

400

 

 

 

6

 

Leasehold improvements

 

 

356

 

 

 

182

 

Furniture & fixtures

 

 

175

 

 

 

125

 

 

 

 

9,777

 

 

 

5,690

 

Accumulated depreciation

 

 

(270

)

 

 

(167

)

 

 

$

9,507

 

 

$

5,523

 

 

Construction in progress includes the estimated fair market value of the building under the Company’s build-to-suit lease for $2.7 million of which the Company is the "deemed owner" for accounting purposes only. See Note 7.

Intangible Assets

As of June 30, 2016 and December 31, 2015, intangible assets consisted of (in thousands):

 

 

 

June 30, 2016

 

 

December 31, 2015

 

 

 

(Unaudited)

 

 

 

 

 

Technology license*

 

$

8,636

 

 

$

8,636

 

Less accumulated amortization

 

 

(2,240

)

 

 

(1,344

)

 

 

$

6,396

 

 

$

7,292

 

 

*Inclusive of $1.5 million intangible asset related to the deferred tax liability, which is not amortized.

9


Amortization expense was $0.5 million, and $0.4 million for the three months ended June 30, 2016 and 2015, respectively, and $0.9 million and $0.4 million for the six months ended June 30, 2016 and 2015, respectively.  Amortization for the Company’s technology license is included in research and development expense in the condensed consolidated statement of operations.

Other Assets

As of June 30, 2016 and December 31, 2015, other assets consisted of (in thousands):

 

 

 

June 30, 2016

 

 

December 31, 2015

 

 

 

(Unaudited)

 

 

 

 

 

Equipment not placed in service

 

$

567

 

 

$

624

 

License fees

 

 

308

 

 

 

 

Security deposit

 

 

248

 

 

 

344

 

Software license and implementation costs

 

 

17

 

 

 

391

 

 

 

$

1,140

 

 

$

1,359

 

 

Accrued Expenses

As of June 30, 2016 and December 31, 2015, accrued expenses consisted of (in thousands):

 

 

 

June 30, 2016

 

 

December 31, 2015

 

 

 

(Unaudited)

 

 

 

 

 

Accrued bonus

 

$

2,179

 

 

$

1,359

 

Accrued professional and service fees

 

 

616

 

 

 

367

 

Accrued construction costs

 

 

610

 

 

 

132

 

Accrued compensation

 

 

590

 

 

 

348

 

Accrued preclinical and clinical trial costs

 

 

449

 

 

 

 

Accrued trade shows

 

 

109

 

 

 

 

Accrued franchise and property taxes

 

 

39

 

 

 

225

 

Other

 

 

132

 

 

 

144

 

 

 

$

4,724

 

 

$

2,575

 

 

Investment Income, Net

Net investment income includes interest income from all bank accounts as well as marketable securities, net realized gains or losses on sales of investments and the amortization of the premiums and discounts of the investments and is as follows for the three and six months ended June 30, 2016 and 2015 (in thousands).

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Interest income

 

$

1,239

 

 

$

33

 

 

$

2,431

 

 

$

65

 

Investment amortization accretion expense, net

 

 

(516

)

 

 

 

 

 

(942

)

 

 

 

Net realized gains on investments

 

 

16

 

 

 

 

 

 

18

 

 

 

 

 

 

$

739

 

 

$

33

 

 

$

1,507

 

 

$

65

 

 

Interest income includes interest from the Company’s bank deposits.  The Company did not recognize an impairment loss on any investments for the three and six months ended June 30, 2016 and 2015.

 

 

10


4. Cash Equivalents and Marketable Securities

As of June 30, 2016, all of the Company’s marketable securities are classified as available-for-sale and are scheduled to mature within 4.0 years.  At June 30, 2016, the detail of the Company’s cash equivalents and marketable securities is as follows (in thousands):

 

 

June 30, 2016

 

 

Amortized Cost

 

 

Unrealized Gains

 

 

Unrealized Losses

 

 

Fair Value

 

Current:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial paper

$

4,993

 

 

$

4

 

 

$

 

 

$

4,997

 

Government sponsored securities

 

21,384

 

 

 

32

 

 

 

 

 

 

21,416

 

Corporate debt securities

 

138,173

 

 

 

80

 

 

 

(17

)

 

 

138,236

 

Foreign government bonds

 

10,880

 

 

 

13

 

 

 

(2

)

 

 

10,891

 

Current portion

 

175,430

 

 

 

129

 

 

 

(19

)

 

 

175,540

 

Noncurrent:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Government sponsored securities

 

27,022

 

 

 

166

 

 

 

 

 

 

27,188

 

Corporate debt securities

 

80,241

 

 

 

510

 

 

 

(6

)

 

 

80,745

 

Noncurrent portion

 

107,263

 

 

 

676

 

 

 

(6

)

 

 

107,933

 

Total

$

282,693

 

 

$

805

 

 

$

(25

)

 

$

283,473

 

 

 

At June 30, 2016, 29 of the securities and bonds are in an unrealized loss position.  No securities have been in an unrealized loss position for greater than 12 months. Available-for-sale investments that had been in an unrealized loss position for less than 12 months at June 30, 2016 are as follows (in thousands): 

 

 

 

June 30, 2016

 

 

 

Estimated Fair Value

 

 

Gross Unrealized Losses

 

Corporate debt securities

 

$

60,926

 

 

$

(23

)

Foreign government bonds

 

 

1,864

 

 

 

(2

)