ecyt_Current_Folio_10Q

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

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

 

For the quarterly period ended March 31, 2018

 

OR

 

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

For the transition period from            to            

 

Commission file number 001-35050   

 

ENDOCYTE, INC.

(Exact name of Registrant as specified in its charter)


Delaware

35-1969-140

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification Number)

 

3000 Kent Avenue, Suite A1-100

West Lafayette, IN 47906

(Address of Registrant’s principal executive offices)

Registrant’s telephone number, including area code: (765) 463-7175

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☑ No◻

 

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

 

 

 

 

 

 

 

 

 

Large accelerated filer ◻

    

Accelerated filer ☑

    

Non-accelerated filer ◻
(Do not check if a smaller reporting company)

    

Smaller reporting company ◻

Emerging growth company ◻

 

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

 

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

 

Number of shares of the registrant’s Common Stock, $0.001 par value, outstanding on April 30, 2018: 69,501,640

 

 


 

 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

ENDOCYTE, INC.

 

CONDENSED BALANCE SHEETS

 

 

 

 

 

 

 

 

 

 

 

December 31, 

 

March 31, 

 

 

    

2017

    

2018

 

Assets

 

 

 

 

 

(unaudited)

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

18,559,130

 

$

89,831,744

 

Short-term investments

 

 

78,912,297

 

 

83,292,883

 

Receivables

 

 

273,044

 

 

 —

 

Prepaid expenses

 

 

751,255

 

 

1,259,420

 

Other assets

 

 

77,077

 

 

172,390

 

Total current assets

 

 

98,572,803

 

 

174,556,437

 

Property and equipment, net

 

 

2,182,399

 

 

1,942,852

 

Other noncurrent assets

 

 

7,067

 

 

178,941

 

Total assets

 

$

100,762,269

 

$

176,678,230

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

376,394

 

$

1,414,607

 

Accrued wages and benefits

 

 

2,533,133

 

 

1,120,772

 

Accrued clinical trial expenses

 

 

689,985

 

 

1,007,396

 

Accrued expenses and other liabilities

 

 

946,668

 

 

1,070,302

 

Total current liabilities

 

 

4,546,180

 

 

4,613,077

 

Deferred revenue, net of current portion

 

 

731,944

 

 

363,266

 

Total liabilities

 

 

5,278,124

 

 

4,976,343

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock: $0.001 par value, 100,000,000 shares authorized; 48,203,529 and 69,427,773 shares issued and outstanding at December 31, 2017 and March 31, 2018

 

 

48,204

 

 

69,428

 

Additional paid-in capital

 

 

404,454,909

 

 

488,929,377

 

Accumulated other comprehensive loss

 

 

(64,433)

 

 

(79,143)

 

Retained deficit

 

 

(308,954,535)

 

 

(317,217,775)

 

Total stockholders’ equity

 

 

95,484,145

 

 

171,701,887

 

Total liabilities and stockholders’ equity

 

$

100,762,269

 

$

176,678,230

 

 

See accompanying notes.

 

 

2


 

 

ENDOCYTE, INC.

 

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

 

2017

 

2018

 

 

 

(unaudited)

 

Revenue:

    

 

 

    

 

 

    

Collaboration revenue

 

$

12,500

 

$

15,855

 

Total revenue

 

 

12,500

 

 

15,855

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

 

7,994,472

 

 

5,255,065

 

General and administrative

 

 

3,745,262

 

 

3,777,546

 

Total operating expenses

 

 

11,739,734

 

 

9,032,611

 

Loss from operations

 

 

(11,727,234)

 

 

(9,016,756)

 

Other income, net:

 

 

 

 

 

 

 

Interest income, net

 

 

235,451

 

 

412,897

 

Other income, net

 

 

3,198

 

 

1,213

 

Net loss

 

 

(11,488,585)

 

 

(8,602,646)

 

Net loss per share – basic and diluted

 

$

(0.27)

 

$

(0.16)

 

Items included in other comprehensive loss:

 

 

 

 

 

 

 

Unrealized loss on available-for-sale securities

 

 

(12,681)

 

 

(14,710)

 

Other comprehensive loss

 

 

(12,681)

 

 

(14,710)

 

Comprehensive loss

 

$

(11,501,266)

 

$

(8,617,356)

 

Weighted-average number of common shares used in net loss per share calculation – basic and diluted

 

 

42,434,709

 

 

55,000,743

 

 

See accompanying notes.

3


 

 

ENDOCYTE, INC.

 

CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

 

 

 

 

Common Stock

 

Paid-In

 

Comprehensive

 

Retained

 

 

 

 

 

    

Shares

    

Amount

    

Capital

    

Income (Loss)

    

Deficit

    

Total

 

Balances December 31, 2017

 

48,203,529

 

$

48,204

 

$

404,454,909

 

$

(64,433)

 

$

(308,954,535)

 

$

95,484,145

 

Cumulative effect of adoption of ASC 606 (See Note 3)

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

339,406

 

 

339,406

 

Balances at January 1, 2018

 

48,203,529

 

$

48,204

 

$

404,454,909

 

$

(64,433)

 

$

(308,615,129)

 

$

95,823,551

 

Exercise of stock options

 

561,088

 

 

561

 

 

2,302,412

 

 

 —

 

 

 —

 

 

2,302,973

 

Issuance of common stock in connection with equity offering

 

20,535,714

 

 

20,536

 

 

80,920,845

 

 

 —

 

 

 —

 

 

80,941,381

 

Stock-based compensation

 

127,442

 

 

127

 

 

1,251,211

 

 

 —

 

 

 —

 

 

1,251,338

 

Net loss

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(8,602,646)

 

 

(8,602,646)

 

Unrealized loss on securities

 

 —

 

 

 —

 

 

 —

 

 

(14,710)

 

 

 —

 

 

(14,710)

 

Balances March 31, 2018

 

69,427,773

 

$

69,428

 

$

488,929,377

 

$

(79,143)

 

$

(317,217,775)

 

$

171,701,887

 

 

See accompanying notes.

4


 

 

ENDOCYTE, INC.

 

CONDENSED STATEMENTS OF CASH FLOWS

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

    

2017

    

2018

    

 

 

(unaudited)

 

Operating activities

 

 

 

 

 

 

 

Net loss

 

$

(11,488,585)

 

$

(8,602,646)

 

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

 

 

 

 

 

 

 

Depreciation

 

 

238,347

 

 

202,644

 

Stock-based compensation

 

 

1,132,519

 

 

1,355,800

 

Loss on disposal of property and equipment

 

 

2,222

 

 

(1,213)

 

Accretion of bond premium (discount)

 

 

43,001

 

 

(192,298)

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Receivables

 

 

22,435

 

 

177,731

 

Prepaid expenses and other assets

 

 

396,962

 

 

(337,374)

 

Accounts payable

 

 

(3,085)

 

 

863,915

 

Accrued wages, benefits and other liabilities

 

 

(814,721)

 

 

(1,155,713)

 

Deferred revenue

 

 

(12,500)

 

 

(15,855)

 

Net cash used in operating activities

 

 

(10,483,405)

 

 

(7,705,009)

 

Investing activities

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(29,536)

 

 

(5,225)

 

Proceeds from disposal of property and equipment

 

 

 —

 

 

46,580

 

Purchases of investments

 

 

(14,977,694)

 

 

(27,703,624)

 

Proceeds from sale and maturities of investments

 

 

28,000,000

 

 

23,500,000

 

Net cash provided by (used in) investing activities

 

 

12,992,770

 

 

(4,162,269)

 

Financing activities

 

 

 

 

 

 

 

Stock repurchase

 

 

(92,929)

 

 

(104,462)

 

Proceeds from issuance of common stock in connection with equity offering

 

 

 —

 

 

80,941,381

 

Proceeds from the exercise of stock options

 

 

16,290

 

 

2,302,973

 

Net cash provided by (used in) financing activities

 

 

(76,639)

 

 

83,139,892

 

Net increase in cash and cash equivalents

 

 

2,432,726

 

 

71,272,614

 

Cash and cash equivalents at beginning of period

 

 

31,228,192

 

 

18,559,130

 

Cash and cash equivalents at end of period

 

$

33,660,918

 

$

89,831,744

 

 

See accompanying notes.

5


 

 

ENDOCYTE, INC.

 

NOTES TO CONDENSED FINANCIAL STATEMENTS

 

1. Nature of Business and Organization

 

Endocyte, Inc. (the “Company”) is a biopharmaceutical company and leader in developing targeted therapies for the treatment of cancer. The Company uses drug conjugation technology to create novel therapeutics and companion imaging agents for personalized targeted therapies. The agents actively target receptors that are over-expressed on diseased cells relative to healthy cells, such as prostate specific membrane antigen (“PSMA”) in prostate cancer. This targeted approach is designed to safely enable the delivery of highly potent drug payloads. The companion imaging agents are designed to identify patients whose disease over-expresses the target of the therapy and who are therefore more likely to benefit from treatment.  

 

In September 2017, the Company entered into a Development and License Agreement (the “License Agreement”) with ABX advanced biochemical compounds – Biomedizinische Forschungsreagenzien GmbH (“ABX”), pursuant to which the Company acquired exclusive worldwide rights to develop and commercialize PSMA-617 agents, including the product candidate known as 177Lu-PSMA-617, a radioligand therapeutic (“RLT”). Following a successful End of Phase 2 meeting with the U.S. Food and Drug Administration (“FDA”), the Company finalized the phase 3 VISION trial design and registration plan for 177Lu-PSMA-617. The trial will include two interim assessments of efficacy, which could potentially lead to an early approval for 177Lu-PSMA-617. The Company intends to initiate, in the second quarter of 2018, the VISION trial, an international, prospective, open-label, multicenter, randomized phase 3 study of 177Lu-PSMA-617 in up to 750 patients with progressive PSMA-positive metastatic castration-resistant prostate cancer (“mCRPC”) who have received at least one novel androgen axis drug (“NAAD”) and at least one taxane regimen. On October 2, 2017, the Company announced its plan to primarily focus its resources on the development of 177Lu-PSMA-617 and on a targeted effort to generate proof-of-concept data for the EC17 adaptor-controlled chimeric antigen receptor T-cell (“EC17/CAR T-cell”) program, and to explore out-licensing opportunities for all other development programs, such as EC2629.

 

2. Significant Accounting Policies

 

Basis of Presentation

 

The accompanying condensed financial statements are prepared in conformity with U.S. generally accepted accounting principles (“GAAP”) for interim financial information to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments, consisting of normal recurring accruals and revisions of estimates, considered necessary for a fair presentation of the accompanying condensed financial statements have been included. Interim results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2018 or any other future period. These condensed financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. Subsequent events have been evaluated through the date of issuance, which is the same as the date this Form 10-Q is filed with the Securities and Exchange Commission (“the SEC”).

 

Segment Information

 

Operating segments are defined as components of an enterprise engaging in business activities for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance. All long-lived assets are held in the U.S. The Company views its operations and manages its business in one operating segment.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual amounts may differ from those estimates.

6


 

 

 

Cash and Cash Equivalents

 

The Company considers cash and all highly liquid investments with a maturity of three months or less at the date of purchase to be cash equivalents. Cash equivalents consist primarily of money market instruments, U.S. government treasury obligations, corporate debt securities and repurchase agreements that are maintained by an investment manager.

 

Investments

 

Investments consist primarily of investments in U.S. Treasuries and corporate debt securities, which could also include commercial paper, that are maintained by an investment manager. Management determines the appropriate classification of marketable securities at the time of purchase and reevaluates such classification as of each balance sheet date. Available-for-sale securities are carried at fair value, with the unrealized gains and losses reported in other comprehensive income (loss). Realized gains and losses and declines in value judged to be other-than-temporary on available-for-sale securities are included in other income (loss). The Company considers and accounts for other-than-temporary impairments according to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 320, Investments — Debt and Equity Securities (“ASC 320”). The cost of securities sold is based on the specific-identification method. Discounts and premiums on debt securities are amortized to interest income and expensed over the term of the security.

 

Revenue Recognition

 

Commencing with reporting periods beginning January 1, 2018, the Company recognizes revenue in accordance with ASC 606, Revenue from Contracts with Customers. The Company’s contract revenues consist of revenues from license and collaboration agreements. License and collaboration revenue is primarily generated through agreements with strategic partners for the development and potential commercialization of our product candidates. The terms of the agreement typically include non-refundable upfront fees, funding of research and development activities, payments based upon achievement of milestones and potential royalties on net product sales. Non-refundable upfront fees and funding of research and development activities are considered fixed consideration, while milestone payments and royalties are identified as variable consideration.

 

The Company recognizes revenues from license and collaboration agreements to depict the transfer of promised goods or services in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. In order to determine the appropriate amount of revenue to be recognized as the Company fulfills its obligations under a contract, the Company follows the following steps for in-scope transactions: 1) identification of the contract with a customer, 2) identification of the separate performance obligations in the contract, 3) determination of the transaction price, 4) allocation of the transaction price to the separate performance obligations in the contract, and 5) recognition of revenue when or as the Company satisfies a performance obligation.

 

The Company’s performance obligations may include license rights, research and development services, services associated with regulatory submission and approval processes and services related to potential commercialization processes. Significant judgment may be required to determine the level of effort required under an arrangement and the period over which the Company expects to satisfy its performance obligations under the arrangement. If the Company cannot reasonably estimate when its performance obligations either are satisfied or become inconsequential, then revenue recognition is deferred until the Company can reasonably make such estimates. Revenue is then recognized over the remaining estimated period of performance using the cumulative catch-up method.

 

License Agreements

 

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 licensee and the licensee is able to use and benefit from the license. For licenses that may be bundled with other promises, the Company will utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue from non-refundable, upfront fees. Because the drug development process is lengthy and the Company’s collaboration agreements typically cover activities over several years, this approach may result in the deferral of significant amounts

7


 

 

of revenue into future periods. Each reporting period, the Company will evaluate the measure of progress and, if necessary, adjust the measure of performance and related revenue recognition.

 

Milestone Payments

 

At the inception of each arrangement that includes milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the value of the associated milestone (such as a regulatory submission by the Company) is included in the transaction price. Milestone payments that are not within the control of the Company, such as approvals from regulators, are not considered probable of being achieved until those approvals are received. When the Company’s assessment of probability of achievement changes and variable consideration becomes probable, any additional estimated consideration is allocated to each performance obligation based on the estimated relative standalone selling prices of the promised good or service underlying each performance obligation and recorded in license, collaboration, and other revenues based upon when the customer obtains control of each element.

 

Royalty Payments

 

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 (a) when the related sales occur, or (b) when the performance obligation to which some or all of the royalty has been allocated has been satisfied. To date, none of the Company’s products have been approved and therefore the Company has not earned any royalty revenue from product sales.

 

Research and Development Expenses

 

Research and development expenses represent costs associated with the ongoing development of novel therapeutics and companion imaging agents for personalized targeted therapies and include salaries and employee benefits, supplies, facility costs related to research activities, and expenses for clinical trials. The Company records accruals for clinical trial expenses based on the estimated amount of work completed. The Company monitors patient enrollment levels and related activities to the extent possible through internal reviews, correspondence, and discussions with research organizations. In the event that a clinical trial is terminated early, the Company records, in the period of termination, an accrual for the estimated remaining costs to complete and close out the trial pursuant to ASC Topic 420, Exit or Disposal Cost Obligations, as a terminated trial does not provide any future economic benefit to the Company. See Note 10 – Restructuring Costs of the Notes to Condensed Financial Statements contained herein for costs incurred during the three months ended March 31, 2018 related to the Company’s restructuring activities.

 

Upfront payments made in connection with business collaborations and research and development arrangements are evaluated under ASC Subtopic 730-20, Research and Development Arrangements. Amounts related to future research and development are capitalized as prepaid research and development and are expensed over the service period based upon the level of services provided. As of March 31, 2018, the Company had approximately $0.6 million of capitalized research and development costs included in prepaid expenses.

 

Acquired In-Process Research and Development Expense

 

The Company has acquired and may continue to acquire the rights to develop and commercialize new drug candidates. In accordance with ASC Subtopic 730-25, Accounting for Research and Development Costs, the upfront payments to acquire a new drug compound, as well as future milestone payments when paid or payable, are immediately expensed as acquired in-process research and development (“IPR&D”) in transactions other than a business combination provided that the drug has not achieved regulatory approval for marketing and, absent obtaining such approval, has no alternative future use. Upon obtaining regulatory approval for marketing, any related milestone payments may be capitalized and amortized over the life of the asset.

 

Stock-Based Compensation

 

The Company accounts for its stock-based compensation pursuant to ASC Topic 718, Compensation — Stock Compensation (“ASC 718”), which requires the recognition of the fair value of stock-based compensation in net income.

8


 

 

Stock-based compensation consists of stock options, which are granted at exercise prices at or above the fair market value of the Company’s common stock on the dates of grant, service-based restricted stock units (“RSUs”) and shares available for purchase under the Company’s 2010 Employee Stock Purchase Plan (“ESPP”). For RSUs and stock options issued by the Company, stock-based compensation expense is recognized ratably over the service period. The Company recognizes compensation cost based on the grant date fair value estimated in accordance with the provisions of ASC 718.

 

Net Loss Per Share

 

Basic net loss per share is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common share equivalents outstanding for the period determined using the treasury-stock method and the if-converted method. For purposes of this calculation, stock options, warrants, RSUs and shares to be purchased under the ESPP are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

 

Common stock equivalents   

 

As of March 31, 2017 and 2018, the following number of potential common stock equivalents were outstanding:

 

 

 

 

 

 

 

 

 

As of March 31, 

 

 

    

2017

    

2018

    

Outstanding common stock options

 

6,860,968

 

5,996,771

 

Outstanding warrants

 

34,647

 

722,000

 

Outstanding RSUs

 

616,912

 

1,524,581

 

Shares to be purchased under the ESPP

 

30,121

 

20,456

 

Total

 

7,542,648

 

8,263,808

 

 

These common stock equivalents were excluded from the determination of diluted net loss per share due to their anti-dilutive effect on earnings. The increase in outstanding warrants was due to warrants issued in connection with the License Agreement. For additional information on the outstanding warrants, see Note 8 – Warrants of the Notes to Condensed Financial Statements contained herein.

 

 

3. New Accounting Pronouncements

 

Recently Issued Accounting Standards

 

In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases, an update to ASC Topic 842, Leases. This guidance requires lessees to recognize leases as assets and liabilities on their balance sheets but recognize expenses on their income statements in a manner similar to the current accounting guidance. For lessors, the guidance also modifies the classification criteria and the accounting for sales-type and direct finance leases. This update is effective for the Company for interim and annual reporting periods beginning January 1, 2019 unless it elects early adoption. The Company is currently evaluating the impact, if any, the adoption of this guidance will have on its financial statements.

 

9


 

 

Recently Adopted Accounting Standards

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), to clarify the principles used to recognize revenue for all entities. Under ASU 2014-09 as subsequently amended and clarified (“ASC 606”), an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In order to do so, an entity would follow the five-step process for in-scope transactions: 1) identify the contract with a customer, 2) identify the separate performance obligations in the contract, 3) determine the transaction price, 4) allocate the transaction price to the separate performance obligations in the contract, and 5) recognize revenue when (or as) the entity satisfies a performance obligation. ASC 606 was effective for the Company for interim and annual reporting periods beginning January 1, 2018. The Company adopted ASC 606 in the three months ended March 31, 2018 using the modified retrospective method by recognizing the cumulative effect of initially applying the new revenue standard as an adjustment to the opening balance of retained deficit. The cumulative effect related to the adoption of ASC 606 was a $0.3 million decrease to the opening balance of retained deficit at January 1, 2018. The Company had deferred revenue related to its agreement with Nihon Medi-Physic Co., LTD. (“NMP”) of approximately $0.4 million at March 31, 2018 and will record the revenue on a straight-line basis over the remaining estimated performance obligation period of approximately six years. The Company currently has a limited number of contracts with customers and only one revenue stream, which relates to collaboration and licensing arrangements, and which represents all of the revenue earned in the three months ended March 31, 2018. The adoption of ASC 606 did not have a material impact on the Company’s financial statements and is not expected to have a material impact on the Company’s financial statements on an ongoing basis.

 

4. Other Comprehensive Income (Loss)

 

The following tables summarize the accumulated balances related to each component of other comprehensive loss for the three months ended March 31, 2017 and 2018:

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Accumulated

 

 

 

Unrealized Net

 

Other

 

 

 

Losses

 

Comprehensive

 

 

 

on Securities

 

Losses

 

Balance at December 31, 2016

 

$

(41,196)

 

$

(41,196)

 

Unrealized loss

 

 

(12,681)

 

 

(12,681)

 

Other comprehensive loss

 

 

(12,681)

 

 

(12,681)

 

Balance at March 31, 2017

 

$

(53,877)

 

$

(53,877)

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Accumulated

 

 

 

Unrealized Net

 

Other

 

 

 

Losses

 

Comprehensive

 

 

 

on Securities

 

Losses

 

Balance at December 31, 2017

 

$

(64,433)

 

$

(64,433)

 

Unrealized loss

 

 

(14,710)

 

 

(14,710)

 

Other comprehensive loss

 

 

(14,710)

 

 

(14,710)

 

Balance at March 31, 2018

 

$

(79,143)

 

$

(79,143)

 

 

 

5. Investments

 

The Company applies the fair value measurement and disclosure provisions of ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820, which defines fair value, establishes a framework for measuring fair value in GAAP, and expands disclosures about fair value measurements. Investments consist primarily of investments with maturities greater than three months, but no longer than 24 months, when purchased.

 

ASC 820 establishes a three-level valuation hierarchy for fair value measurements. These valuation techniques are based upon the transparency of inputs (observable and unobservable) to the valuation of an asset or liability as of the

10


 

 

measurement date. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:

 

Level 1 — Valuation is based on quoted prices for identical assets or liabilities in active markets.

 

Level 2 — Valuation is based on quoted prices for similar assets or liabilities in active markets, or other inputs that are observable for the asset or liability, either directly or indirectly, for the full term of the financial instrument.

 

Level 3 — Valuation is based upon other unobservable inputs that are significant to the fair value measurement.

 

The fair value of the Company’s fixed income securities is based on a market approach using quoted market values.

 

The following table summarizes the fair value of cash and cash equivalents and investments as of December 31, 2017:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

Fair Value

 

Description

 

Cost

 

Level 1

 

Level 2

 

(Carrying Value)

 

Cash

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

2,544,972

 

$

2,544,972

 

$

 —

 

$

2,544,972

 

Cash equivalents (maturity of 3 months or less)

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase agreements

 

 

10,000,000

 

 

 —

 

 

10,000,000

 

 

10,000,000

 

Money market funds

 

 

6,014,158

 

 

6,014,158

 

 

 

 

6,014,158

 

Cash and cash equivalents

 

$

18,559,130

 

$

8,559,130

 

$

10,000,000

 

$

18,559,130

 

Short-term investments (due within 1 year)

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government treasury obligations

 

$

63,034,548

 

$

62,970,115

 

$

 —

 

$

62,970,115

 

Corporate obligations

 

 

15,942,182

 

 

 —

 

 

15,942,182

 

 

15,942,182

 

Total short-term investments

 

$

78,976,730

 

$

62,970,115

 

$

15,942,182

 

$

78,912,297

 

 

 

The following table summarizes the fair value of cash and cash equivalents and investments as of March 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

 

 

    

 

 

    

Fair Value

 

Description

 

Cost

 

Level 1

 

Level 2

 

(Carrying Value)

 

Cash

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

8,423,398

 

$

8,423,398

 

$

 —

 

$

8,423,398

 

Cash equivalents (maturity of 3 months or less)

 

 

 

 

 

 

 

 

 

 

 

 

 

Repurchase agreements

 

 

10,000,000

 

 

 —

 

 

10,000,000

 

 

10,000,000

 

Money market funds

 

 

16,993,446

 

 

16,993,446

 

 

 —

 

 

16,993,446

 

U.S. government treasury obligations

 

 

34,955,020

 

 

34,956,700

 

 

 —

 

 

34,956,700

 

Corporate obligations

 

 

19,459,253

 

 

 —

 

 

19,458,200

 

 

19,458,200

 

Cash and cash equivalents

 

$

89,831,117

 

$

60,373,544

 

$

29,458,200

 

$

89,831,744

 

Short-term investments (due within 1 year)

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government treasury obligations

 

$

56,621,253

 

$

56,550,250

 

$

 —

 

$

56,550,250

 

Corporate obligations

 

 

26,751,400

 

 

 —

 

 

26,742,633

 

 

26,742,633

 

Total short-term investments

 

$

83,372,653

 

$

56,550,250

 

$

26,742,633

 

$

83,292,883

 

 

 

All securities held at December 31, 2017 and March 31, 2018, were classified as available-for-sale as defined by ASC 320.

 

Total unrealized gross gains were $1,756 as of March 31, 2018. There were no unrealized gross gains as of December 31, 2017. Total unrealized gross losses were $64,433 and $80,899 as of December 31, 2017 and March 31, 2018, respectively. The Company does not consider any of the unrealized losses to be other-than-temporary impairments because the Company has the intent and ability to hold investments until they recover in value. There were no total realized gross gains or total realized gross losses for the three months ended March 31, 2017 and 2018.

 

11


 

 

6. Collaboration and Other Arrangements

 

ABX Development and License Agreement

 

In September 2017, the Company entered into the License Agreement with ABX that grants the Company exclusive worldwide rights to develop and commercialize PSMA-617 agents. Under the terms of the License Agreement, the Company will be responsible for, and bear the future costs of, worldwide development and commercialization of PSMA-617. As consideration for the exclusive license, the Company made an upfront cash payment on September 29, 2017 of approximately $11.9 million to ABX, consisting of $12.0 million less an immaterial expense reimbursement amount, and issued to ABX 2,000,000 shares of the Company’s common stock (see Note 7 – Stockholders’ Equity (Deficit) of the Notes to Condensed Financial Statements for additional information regarding this issuance) and two warrants to purchase, in the aggregate, 4,000,000 shares of the Company’s common stock (see Note 8 – Warrants of the Notes to Condensed Financial Statements for additional information regarding the warrants). The License Agreement also obligates the Company to pay ABX regulatory milestone payments of up to $25.0 million, sales milestone payments of up to $135.0 million, and tiered royalties, beginning in the mid-teens and not to exceed the mid-twenties, based on percentages of net sales.  

 

In addition, under a three-party agreement, entered into in October 2017, among the Company, the University of Sydney (the “University”) and ANZUP, a cooperative cancer trials group operating in Australia and New Zealand pursuing research in genito-urinary malignancies, ANZUP sponsors jointly with the University a randomized phase 2 multi-center TheraP trial of 177Lu-PSMA-617 versus cabazitaxel in 200 mCRPC patients. The TheraP trial commenced enrollment in the first quarter of 2018. Under the three-party agreement, the Company provides the PSMA-617 precursor molecule and financial support for the trial. The Company will have access to data generated from the trial, which is a potentially important supportive trial for future regulatory submissions. The primary financial obligations of the trial, along with labeling PSMA-617 with Lutetium-177, will be the responsibility of the University and ANZUP.

 

NMP License and Commercialization Agreement

 

In August 2013, the Company entered into a license and commercialization agreement with NMP that grants NMP the right to develop and commercialize etarfolatide in Japan for use in connection with any folate receptor-targeted therapeutic drug in Japan. The Company received a $1.0 million non-refundable upfront payment, is eligible for up to $4.5 million based on the successful achievement of regulatory goals for etarfolatide in five different cancer indications and is eligible to receive double-digit percentage royalties on sales of etarfolatide in Japan.

 

For revenue recognition purposes, the Company historically viewed the agreement with NMP as a multiple element arrangement upon execution of the agreement in 2013. The Company’s deliverables were accounted for as a single unit of account, therefore the non-refundable upfront payment was being recognized on a straight-line basis over the performance period which had been determined to continue through the estimated termination date of the contract, or through the end of 2033. In the three months ended March 31, 2018, the Company adopted ASC 606 and therefore analyzed the agreement with NMP using the five-step process as described in Note 3 – New Accounting Pronouncements of the Notes to Condensed Financial Statements contained herein. The Company determined that the upfront payment of $1.0 million relates to one performance obligation, which was determined to be the successful development and commercialization of etarfolatide in connection with a related folate receptor-targeted therapeutic drug in Japan, and should be allocated over the performance period that the Company estimates will be required to satisfy the combined performance obligation rather than the period over which the final undelivered item was estimated to be delivered, which was the life of the contract, under the previous standard. Under the modified retrospective method of adoption of ASC 606, the Company recorded a cumulative effect adjustment to reduce deferred revenue by $0.3 million and to decrease its retained deficit at January 1, 2018. The Company had deferred revenue related to the agreement with NMP of approximately $0.4 million at March 31, 2018 and will continue to record the revenue on a straight-line basis over the remaining estimated performance obligation period of approximately six years. The adoption of ASC 606 did not have a material effect on the Company’s financial statements.

 

The arrangement with NMP includes milestone payments of up to approximately $4.5 million and the milestones are based on the commencement of clinical trials in Japan for specific and non-specific indications and filing for approval in Japan for specific and non-specific indications. The Company evaluated each of these milestone payments and believes that all of the milestones should be excluded from the transaction price due to substantial performance risk. In order for the milestones to be reached, the Company must complete additional clinical trials which show a positive

12


 

 

outcome or receive approval from a regulatory authority. To date, the products have not been approved in Japan and no revenue has been recognized related to the regulatory milestones or royalties.

 

NMP has the right to terminate the collaboration agreement on 90 days notice prior to the first commercial sale in Japan and six months notice after the first commercial sale in Japan. NMP also has the right to terminate the agreement on six months notice if the Company fails to launch any folate receptor-targeted therapeutic drug after receiving regulatory approval in Japan. NMP and the Company each have the right to terminate the agreement due to the material breach or insolvency of the other party. Upon termination of the agreement depending on the circumstances, the parties have varying rights and obligations with respect to licensing and related regulatory materials and data.

 

7. Stockholders’ Equity (Deficit)

 

Public Offering of Common Stock

 

On March 2, 2018, the Company closed an underwritten registered public offering of 20,535,714 shares of its common stock, which included the underwriters’ exercise in full of their option to purchase additional shares. The shares were sold at a public offering price of $4.20 per share. In the three months ended March 31, 2018, the Company received aggregate net proceeds from the offering of approximately $80.9 million, after deducting underwriting discounts and commissions of $5.2 million and offering expenses paid by the Company of $0.1 million.

 

Issuances Related to the License Agreement

 

In connection with the License Agreement, the Company issued to ABX on September 29, 2017, 2,000,000 unregistered shares of the Company’s common stock and two warrants to purchase up to 4,000,000 shares of the Company’s common stock, one of which warrants to purchase 3,278,000 shares was exercised on that same day. Pursuant to a Registration Rights Agreement entered into with ABX, the Company registered for resale these 6,000,000 shares of common stock with the SEC on a Form S-3 Registration Statement that was declared effective on October 24, 2017.

 

Stock-Based Compensation Plans

 

The Company has had stock-based compensation plans since 1997. The awards made under the plans adopted in 1997 and 2007 consisted of stock options. The 2010 Equity Incentive Plan (the “2010 Plan”), which is the only plan under which awards may currently be made, authorizes awards in the form of stock options, stock appreciation rights, restricted stock, RSUs, performance-based RSUs and performance units and performance shares. Awards under the 2010 Plan may be made to employees, directors and certain consultants as determined by the compensation committee of the board of directors. There were 11,850,563 and 13,296,563 shares of common stock authorized and reserved under these plans at December 31, 2017 and March 31, 2018, respectively.

 

Stock Options

 

Under the various plans, employees have been granted incentive stock options, while directors and consultants have been granted non-qualified options. The plans allow the holder of an option to purchase common stock at the exercise price, which was at or above the fair value of the Company’s common stock on the date of grant.

 

Generally, options granted under the 1997 and 2007 plans in connection with an employee’s commencement of employment vested over a four-year period with one-half of the shares subject to the grant vesting after two years of employment and the remaining options vesting monthly over the remainder of the four-year period. Options granted under the 1997 and 2007 plans for performance or promotions vested monthly over a four-year period. Generally, options granted under the 2010 Plan vest annually over a three-year or four-year period. Unexercised stock options terminate on the tenth anniversary date after the date of grant. The Company recognizes stock-based compensation expense over the requisite service period of the individual grantees, which generally equals the vesting period. The Company utilizes a Black-Scholes option-pricing model to estimate the value of stock options. The Black-Scholes model allows the use of a range of assumptions related to historical volatility, risk-free interest rate, employee exercise behavior and dividend yield.

 

13


 

 

The Company is using the “simplified” method for “plain vanilla” options to estimate the expected term of the stock option grants. Under this approach, the weighted-average expected life is presumed to be the average of the vesting term and the contractual term of the option. The risk-free interest rate assumption is derived from the weighted-average yield of a U.S. Treasury security with the same term as the expected life of the options, and the dividend yield assumption is based on historical experience and the Company’s estimate of future dividend yields.

 

The weighted-average value of the individual options granted during the three months ended March 31, 2017 and 2018 were determined using the following assumptions.

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

    

2017

    

2018

    

    

Expected volatility

 

93.02

%  

102.03

%  

 

Risk-free interest rate

 

2.12

%  

2.65

%  

 

Weighted-average expected life (in years)

 

6.3

 

6.4

 

 

Dividend yield

 

0.00

%  

0.00

%  

 

 

The Company’s stock option activity and related information are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average

 

 

 

 

 

 

 

 

 

 

 

Remaining

 

 

 

 

 

 

 

 

Weighted-Average

 

Contractual Term

 

Aggregate

 

 

    

Options

    

Exercise Price

    

(In Years)

    

Intrinsic Value

 

Outstanding at January 1, 2018

 

5,878,660

 

$

5.93

 

 

 

 

 

 

Granted during period

 

688,192

 

 

3.07

 

 

 

 

 

 

Exercised during period

 

(561,088)

 

 

4.10

 

 

 

 

 

 

Expired during period

 

(8,993)

 

 

3.06

 

 

 

 

 

 

Outstanding at March 31, 2018

 

5,996,771

 

$

5.78

 

6.18

 

$

22,125,418

 

Exercisable at March 31, 2018

 

4,290,445

 

$

6.92

 

5.02

 

$

11,551,954

 

 

As of March 31, 2018, the total remaining unrecognized compensation cost related to stock options granted was $3.4 million, which is expected to be recognized over a weighted average period of approximately 2.0 years.

 

Restricted Stock Units

 

RSUs are service-based awards that will vest and be paid in the form of one share of the Company’s common stock for each RSU, generally in two, three or four equal annual installments beginning on the first anniversary of the date of grant of an RSU. As of March 31, 2018, the Company had 1,524,581 RSU awards outstanding. As of March 31, 2018, the total remaining unrecognized compensation cost related to RSUs was $5.7 million, which is expected to be recognized over a weighted average period of approximately 1.4 years.

 

The following table sets forth the number of RSUs that were granted, vested and forfeited in the period indicated:

 

 

 

 

 

 

 

 

 

    

Restricted

    

Weighted-Average

 

 

 

Stock

 

Grant 

 

 

 

 Units

 

Date Fair Value

 

Outstanding at January 1, 2018

 

1,383,770

 

$

5.05

 

Granted during period

 

301,958

 

 

3.02

 

Vested during period

 

(161,147)

 

 

4.27

 

Outstanding at March 31, 2018

 

1,524,581

 

$

4.73

 

 

Employee Stock Purchase Plan

 

At January 1, 2018, 769,542 common shares were available for issuance under the ESPP. Shares may be issued under the ESPP twice a year. There were no purchases in the three months ended March 31, 2018. At March 31, 2018, there were 769,542 common shares available for issuance under the ESPP.

 

14


 

 

8. Warrants

 

In connection with the License Agreement, the Company issued to ABX on September 29, 2017, two warrants to purchase up to 4,000,000 shares of the Company’s common stock, at a per share exercise price of $1.39, which is equal to the average closing price of the Company’s common stock during the 30 calendar days prior to September 29, 2017. The Company accounted for the warrants at fair value in stockholders’ equity. The warrants contain a conversion feature in the case of certain mergers or consolidations by the Company. Immediately upon issuance, ABX assigned the warrants to an affiliate and certain related parties, which exercised a warrant for 3,278,000 shares on September 29, 2017, resulting in proceeds to the Company in the amount of approximately $4.6 million. The remaining warrant, covering an aggregate of 722,000 shares, remained outstanding as of March 31, 2018, is exercisable until September 29, 2027, and is subject to restrictions on transfer. This warrant was valued using the Black-Scholes model utilizing a ten-year term, the Company’s historic volatility of 91.1%, and an interest rate of 2.28% which is the risk free interest rate of a treasury bond with the same term as the warrants, which are level 2 fair value measurements. There were no other outstanding warrants as of March 31, 2018.

 

9. Income Taxes

 

The Company accounts for income taxes under the liability method in accordance with the provisions of ASC Topic 740, Income Taxes. The Company recognizes future tax benefits, such as net operating losses, to the extent those benefits are expected to be realized in future periods. Due to uncertainty surrounding the realization of its deferred tax assets, the Company has recorded a valuation allowance against its net deferred tax assets. The Company experienced a change in ownership as defined under Section 382 of the U.S. Internal Revenue Code (the “Code”) in August 2011. As a result, the future use of its net operating losses and credit equivalents, after giving effect to net unrealized built-in gains, were previously limited, but the limitations associated with the change in ownership in August 2011 ended as of December 31, 2017. All amounts are available for use if the Company generates future taxable income prior to expiration of the net operating losses, which will begin in 2021. The utilization of the net operating loss carryforwards could be limited beyond the Company's generation of taxable income if an additional change in the underlying ownership of the Company's common stock has occurred, resulting in a limitation on the amounts that could be utilized in any given period under Section 382 of the Code.

 

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the “2017 Tax Act”) which, among other provisions, reduces the corporate income tax rate from 35% to 21% effective January 1, 2018. The Company’s estimate of the impacts of the 2017 Tax Act are provisional and are based upon its analysis and interpretations of currently available information. Uncertainties remain regarding the impact of the 2017 Tax Act due to future regulatory and rulemaking processes, prospects of additional corrective or supplemental legislation, and potential trade or other litigation. These uncertainties, along with the Company’s completion of the calculations and potential changes in its initial assumptions as new information becomes available, could cause the actual charge to ultimately differ from the provisional amount recorded in 2017 related to the enactment of the 2017 Tax Act. All provisional amounts recorded by the Company are fully reserved.

 

 

15


 

 

10. Restructuring Costs

 

In June 2017, the Company refocused its clinical development efforts and aligned its resources to focus on the Company’s highest value opportunities while maintaining key capabilities. The Company’s restructuring activities included a reduction of its workforce by approximately 40%, as well as stopping enrollment in its EC1456 phase 1b trial as the assessment of trial data did not yield the level of clinical activity necessary to support continued advancement of EC1456. In December 2017, the Company stopped enrollment in its EC1456 ovarian cancer surgical trial. Pursuant to ASC Topic 420,  Exit or Disposal Cost Obligations, the Company recorded $2.3 million of restructuring expenses in the second quarter of 2017 as follows:

 

·

included in research and development expenses were expenses for employee termination benefits of $0.9 million, $0.9 million for the remaining EC1456 phase 1b trial expenses, including site close-out expenses, $0.3 million related to other restructuring expenses, and $0.1 million related to fixed asset impairment charges; and

 

·

included in general and administrative expenses were expenses for employee termination benefits of $0.1 million.

 

As of March 31, 2018, the Company had paid all severance and other costs related to the restructuring activities, and had a clinical trial accrual balance related to the EC1456 phase 1b trial termination of $23,300, which is expected to be fully paid by the end of the second quarter of 2018.

 

The following table summarizes the remaining restructuring accruals for the three months ended March 31, 2018:

 

 

 

 

 

 

    

EC1456

 

 

Phase 1b Trial

 

 

Termination

 

 

Accrual

Balance, January 1, 2018

 

$

106,900

Amounts paid in the three months ended March 31, 2018

 

 

(83,600)

Balance, March 31, 2018

 

$

23,300

 

 

 

 

 

 

16


 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This quarterly report on Form 10-Q contains certain statements that are forward-looking statements within the meaning of federal securities laws. When used in this report, the words “may,” “will,” “should,” “could,” “would,” “anticipate,” “estimate,” “expect,” “plan,” “believe,” “predict,” “potential,” “project,” “target,” “forecast,” “intend,” “working to” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected. These risks and uncertainties include the important risks and uncertainties that may affect our future operations as discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, in this Quarterly Report on Form 10-Q and in any other filings made with the Securities and Exchange Commission. Readers of this report are cautioned not to place undue reliance on these forward-looking statements. While we believe the assumptions on which the forward-looking statements are based are reasonable, there can be no assurance that these forward-looking statements will prove to be accurate. This cautionary statement is applicable to all forward-looking statements contained in this report.

 

Certain amounts presented in this discussion and analysis are presented in thousands and may be rounded for purposes of calculating to the summed rounded amount.

 

Overview

 

We are a biopharmaceutical company and leader in developing targeted therapies for the treatment of cancer. We use drug conjugation technology to create novel therapeutics and companion imaging agents for personalized targeted therapies. Our agents actively target receptors that are over-expressed on diseased cells relative to healthy cells, such as prostate specific membrane antigen, or PSMA, in prostate cancer. This targeted approach is designed to safely enable the delivery of highly potent drug payloads. The companion imaging agents are designed to identify patients whose disease over-expresses the target of the therapy and who are therefore more likely to benefit from treatment.

 

On September 29, 2017, we entered into a Development and License Agreement, or the License Agreement, with ABX advanced biochemical compounds – Biomedizinische Forschungsreagenzien GmbH, or ABX, pursuant to which we acquired exclusive worldwide rights to develop and commercialize PSMA-617 agents, including the product candidate known as 177Lu-PSMA-617, a radioligand therapeutic, or RLT. Under the terms of the License Agreement, we will be responsible for, and bear the future costs of, worldwide development and commercialization of PSMA-617. As consideration for the exclusive license, we made an upfront cash payment on September 29, 2017 of approximately $11.9 million to ABX, consisting of $12.0 million less an immaterial expense reimbursement amount, and issued to ABX 2,000,000 shares of our common stock and warrants to purchase, in the aggregate, 4,000,000 shares of our common stock. The License Agreement also obligates us to pay ABX regulatory milestone payments of up to $25.0 million, sales milestone payments of up to $135.0 million, and tiered royalties, beginning in the mid-teens and not to exceed the mid-twenties, based on percentages of net sales. We recorded $16.5 million of acquired in-process research and development, or IPR&D, expenses related to the License Agreement in 2017 consisting of the following:

 

·

$12.0 million related to the upfront payment to ABX;

 

·

$3.8 million related to the fair value of common stock and warrant shares issued; and

 

·

$0.7 million of acquisition costs consisting primarily of legal and professional fees.

 

In October 2017, we announced our plan to focus our resources on the development of 177Lu-PSMA-617 and on a targeted effort to generate proof-of-concept data for our EC17 adaptor-controlled chimeric antigen receptor T-cell, or EC17/CAR T-cell, therapy program, and to explore out-licensing opportunities for all other development programs, including EC2629, our dual-targeted folate-pro pyrrolobenzodiazepine, or pro-PBD, DNA crosslinker drug.

 

We intend to initiate, in the second quarter of 2018, the VISION trial, an international, prospective, open-label, multicenter, randomized phase 3 study of 177Lu-PSMA-617 enrolling up to 750 patients with progressive PSMA-positive metastatic castration-resistant prostate cancer, or mCRPC. 177Lu-PSMA-617 utilizes a high affinity targeting ligand to direct potent radiotherapy to prostate cancer cells. The specific targeting of this therapy comes from the “ligand” portion of the RLT, which is a small molecule designed to bind to PSMA, a protein highly expressed on the cell surface of most prostate cancer cells but absent on most normal cells. The PSMA targeting ligand in 177Lu-PSMA-

17


 

 

617 is chemically attached to a therapeutic radioactive atom called Lutetium-177 (177Lu), which releases an energetic beta particle designed to precisely deliver cell-killing radiation to the site of disease. Unlike traditional external beam radiotherapy, 177Lu-PSMA-617, which is administered as a systemic injection, has been designed to directly target multiple sites of PSMA-positive prostate cancer throughout the body, including the bone and soft tissue, while bypassing the PSMA-negative cells. Prior to treatment with 177Lu-PSMA-617, the patient’s expression of PSMA can be determined using imaging technology, allowing for personalization of treatment so that the optimum course of therapy might be selected. As highlighted in roughly 20 peer reviewed publications of trials in the post-chemotherapy compassionate use setting, 177Lu-PSMA-617 demonstrated a prostate-specific antigen, or PSA, response (defined as greater than 50% decline from baseline) in 40% to 60% of patients, and a Response Evaluation Criteria in Solid Tumors, or RECIST, response rate in soft tissue disease of between 40% and 50%.

 

In October 2017, we entered into an agreement with RadioMedix, Inc., a biotechnology company focused on innovative targeted radiopharmaceuticals for diagnosis, monitoring and therapy of cancer, which enabled the transfer of a U.S. Investigational New Drug, or IND, application of 177Lu-PSMA-617 from the prior sponsor, RadioMedix, to us. This transfer helped accelerate our successful End of Phase 2 trial meeting with the U.S Food and Drug Administration, or FDA, in early 2018 to confirm our phase 3 trial design and registration plan for 177Lu-PSMA-617.

 

In the three months ended March 31, 2018, we also announced an agreement with ITM Isotopen Technologien München AG, or ITM, which will provide clinical supply of no-carrier-added lutetium for the manufacturing of 177Lu-PSMA-617 for the VISION trial.

 

In addition, we entered into a three-party agreement in October 2017, with the University of Sydney, or the University, and ANZUP, a cooperative cancer trials group operating in Australia and New Zealand pursuing research in genito-urinary malignancies, in which ANZUP sponsors jointly with the University a randomized phase 2 multi-center TheraP trial of 177Lu-PSMA-617 versus cabazitaxel in 200 mCRPC patients. The TheraP trial commenced enrollment in the first quarter of 2018. Under the three-party agreement, we provide the PSMA-617 precursor molecule and financial support for the trial. We will have access to data generated from the trial, which is a potentially important supportive trial for future regulatory submissions. The primary financial obligations of the trial, along with labeling PSMA-617 with Lutetium-177, will be the responsibility of the University and ANZUP.

 

On May 9, 2018, The Lancet Oncology published updated data from a phase 2 investigator-initiated trial of 30 patients with PSMA-positive mCRPC treated with 177Lu-PSMA-617. Preliminary results of this trial were previously announced at the 2017 European Society for Medical Oncology, or ESMO, Congress and presented by Professor Michael Hofman of the Peter MacCallum Cancer Centre in Melbourne, Australia. This publication provided a more comprehensive summary than previously disclosed of patient characteristics, treatment regimen and more mature outcome data, including updated Kaplan-Meier curves estimating overall survival, or OS, and PSA progression-free survival, or PFS, as well as a swimmer’s plot of the 30 patients. This study evaluated a heavily pre-treated patient population, 87% of which had received > 1 line of prior chemotherapy (80% docetaxel and 47% cabazitaxel) and 83% of which had received prior treatment with abiraterone acetate and/or enzalutamide. Observations in this study included a PSA reduction of at least 50% from baseline, or PSA50, in 57% of patients, a PSA reduction of at least 80% from baseline, or PSA80, in 43% of patients and a PSA reduction of > 96% in 20% of patients which were identified as “exceptional responders”. Regarding disease progression and survival, a median PSA PFS of 7.6 months and a median OS of 13.5 months were observed. Both the median PSA PFS and the median OS reflect improved outcomes versus the 6.3 months and 12.7 months for each endpoint, respectively, previously presented at the 2017 ESMO Congress. Notably, patients with a PSA50 response had improved median PSA PFS of 9.9 months and median OS of 17.0 months compared to PSA PFS of 4.1 months and median OS of 9.9 months for those patients who did not achieve a PSA50 response. Additionally, clinically meaningful improvements in quality of life measures were observed. Seventeen patients (57%) had prostate cancer working group 2, or PCWG2, RECIST 1.1 evaluable nodal or visceral target lesions following CT scan at baseline. Confirmed objective responses were seen in 14 (82%) of these 17 patients, including complete and partial response rates of 29% and 53%, respectively. The journal noted that 177Lu-PSMA-617 was well tolerated, with no significant dose-limiting toxicities observed. The most common treatment-related toxicity was Grade 1 xerostomia, commonly referred to as dry mouth, seen in 87% of patients, which is higher than previously reported (63%), but generally did not require any intervention. The occurrence of treatment-related Grade 3-4 hematologic toxicity was low and comparable to the largest retrospective published cohort.

 

We are also developing a unique therapeutic approach that involves the re-targeting of potent immune cells, called CAR T-cells, to fight cancer. CAR T-cell therapies may be characterized as either allogeneic CAR T-cells, which are

18


 

 

those that are engineered using T-cells from a single donor that are utilized in multiple patients, or autologous CAR T-cells, which are those that are engineered using a patient’s own T-cells. Our program utilizes an autologous approach. Traditional CAR T-cell therapies rely on the activity and specificity of T-cells that have been engineered to recognize a single naturally expressed target that, ideally, is only present on cancer cells, with no cross-reactivity to or targeting of healthy tissues. Our alternative strategy relies on a single universal CAR T-cell that expresses a high affinity for a molecule called fluorescein isothiocyanate, or FITC, which is not naturally present in the human body. The activity and specificity of these universal CAR T-cells is dependent upon the administration of our proprietary CAR T adaptor molecules, or CAMs, that “paint” a patient’s cancer cells with FITC by conjugating it to a tumor-targeting ligand. The FITC molecule then attracts the universal CAR T-cell to the site of disease, causing the anti-cancer immune response of a traditional CAR T-cell therapy. However, unlike existing CAR T-cell technologies, our unique CAM-dependent technology makes possible the engineering of a single universal CAR T-cell that can be used to treat a wide range of cancer types. This is accomplished through the use of multiple CAMs, each of which is designed to bind the FITC molecule to a specific cancer type. In addition to enabling the treatment of multiple cancer types with a single universal CAR T-cell, this adaptor technology is also designed to facilitate novel control strategies intended to increase the safety of CAR T-cell therapy. In March 2017, we announced our collaboration with Seattle Children’s Research Institute, or SCRI, and Dr. Michael Jensen for the development of our technology in the CAR T-cell immunotherapy setting, in which we use EC17 as the CAM. The aim of the research collaboration is to join our adapter technology with the CAR T-cell immunotherapy research efforts at the Ben Towne Center for Childhood Cancer Research at SCRI, to move these potentially enabling technologies more quickly to patients in the clinic. In October 2017, we announced that we are limiting the scope of our EC17/CAR T-cell therapy program to a targeted effort to generate proof-of-concept data. Pre-clinical evaluations have been completed, and the IND application is expected to be filed in the fourth quarter of 2018.

 

In June 2017, we ended clinical development of EC1456, our second-generation folate-targeted product candidate, and stopped enrollment in our EC1456 phase 1b trial as the assessment of trial data did not yield the level of clinical activity necessary to support continued advancement of EC1456. In December 2017, we stopped enrollment in our EC1456 ovarian cancer surgical trial. In addition, in June 2017, we narrowed the focus of our phase 1 EC1169 (a PSMA-targeted product candidate) development program (for which enrollment was completed in October 2017, but for which we currently do not intend to invest further resources beyond the completion of the phase 1 taxane-exposed cohort), refocused our efforts on pre-clinical programs, and reduced our workforce by approximately 40% to align resources to focus on our highest value opportunities while maintaining key capabilities. We recorded $2.3 million of restructuring expenses in the second quarter of 2017, as follows:

 

·

included in research and development expenses were expenses for employee termination benefits of $0.9 million, $0.9 million for the remaining EC1456 phase 1b trial expenses, including site close-out expenses, $0.3 million related to other restructuring expenses, and $0.1 million related to fixed asset impairment charges; and

 

·

included in general and administrative expenses were expenses for employee termination benefits of $0.1 million.

 

As of March 31, 2018, we had paid all severance and other costs related to the restructuring activities, and had a clinical trial accrual balance related to the EC1456 phase 1b trial termination of $23,300, which is expected to be fully paid by the end of the second quarter of 2018.

 

For the three months ended March 31, 2018, we had a net loss of $8.6 million compared to a net loss of $11.5 million for the three months ended March 31, 2017. We had a retained deficit of $317.2 million at March 31, 2018. We expect to continue to incur significant operating expenses for the next several years as we pursue the advancement of our product candidates through the research, development, regulatory and, potentially, the commercialization processes. Our operating costs were lower for the three months ended March 31, 2018 compared to the three months ended March 31, 2017, primarily due to decreases in expenses related to pre-clinical work and general research, including expenses related to EC2629, decreases in trial and manufacturing expenses for EC1456 and EC1169 and decreases in compensation expenses as a result of employee terminations since March 31, 2017. These decreases were partially offset by increases in expenses related to PSMA-617 development and expenses related to the EC17/CAR T-cell therapy program.

 

As of March 31, 2018, our cash, cash equivalents and investments were $173.1 million, which included $80.9 million of net proceeds from our public offering of 20,535,714 shares of our common stock that closed in March 2018.

19


 

 

We believe that our current cash balance will be sufficient to fund our activities for at least the next 12 months, which include our focus on clinical development of 177Lu-PSMA-617 and our effort to generate proof-of-concept data for our EC17/CAR T-cell therapy program.  

 

Critical Accounting Policies

 

Our significant accounting policies are described in more detail in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017 and in Note 2 – Significant Accounting Policies of the Notes to Condensed Financial Statements contained in Part I, Item 1 herein. Other than the adoption of Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), or ASC 606, effective January 1, 2018 as discussed in Note 3 – New Accounting Pronouncements of the Notes to Condensed Financial Statements contained in Part I, Item 1 herein, there were no changes in the three months ended March 31, 2018 to the application of the accounting policies that are critical to the judgments and estimates used in the preparation of our condensed financial statements.

 

20


 

 

 

Results of Operations

 

Comparison of Three Months Ended March 31, 2017 to Three Months Ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

Increase/

   

% Increase/

 

 

 

 

2017

 

2018

 

(Decrease)

 

(Decrease)

 

 

 

 

(In thousands)

 

 

Statement of operations data:

    

 

 

    

 

  

    

 

  

 

    

  

 

    

Collaboration revenue

 

$

12

 

$

16

 

$

 4

 

 

33

%

 

Operating expenses:

 

 

  

 

 

  

 

 

  

 

 

  

 

 

Research and development

 

 

7,994

 

 

5,255

 

 

(2,739)

 

 

(34)

%

 

General and administrative

 

 

3,745

 

 

3,778

 

 

33

 

 

 1

%

 

Total operating expenses

 

 

11,739

 

 

9,033

 

 

(2,706)

 

 

(23)

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(11,727)

 

 

(9,017)

 

 

2,710

 

 

23

%

 

Interest income, net

 

 

235

 

 

413

 

 

178

 

 

76

%

 

Other income, net

 

 

 3

 

 

 1

 

 

(2)

 

 

(67)

%

 

Net loss

 

$

(11,489)

 

$

(8,603)

 

$

2,886

 

 

25

%

 

 

Revenue

 

Our revenue of $12,500 in the three months ended March 31, 2017 and $15,855 in the three months ended March 31, 2018 related to the amortization of the $1.0 million non-refundable upfront payment from Nihon Medi-Physic Co., LTD. The slight increase in the revenue recognized in the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was related to the change in the period over which the upfront payment should be recognized in connection with the adoption of ASC 606 as described in Note 3 – New Accounting Pronouncements and Note 6 – Collaboration and Other Arrangements of the Notes to Condensed Financial Statements contained herein.

 

Research and Development

 

The decrease in research and development expenses for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 was primarily attributable to: a decrease of $1.4 million in expenses related to pre-clinical work and general research, including the development of EC2629; a decrease of $0.8 million in EC1169 trial expenses; a decrease of $0.6 million in expenses related to the EC1456 trial; a decrease of $0.5 million in compensation expense as a result of employee terminations since March 31, 2017; and a decrease of $0.4 million in manufacturing expense for EC1169 and EC1456. The decreases were partially offset by: an increase of $0.8 million in expenses related to the development of PSMA-617; and an increase of $0.2 million related to our EC17/CAR T-cell therapy program.

 

Included in research and development expenses were stock-based compensation charges of $0.7 million for each of the three months ended March 31, 2017 and 2018.

 

Research and development expenses included expenses of $0.3 million and $0.2 million for the three months ended March 31, 2017 and 2018, respectively, for company-funded research at Purdue University, the primary employer of our Chief Science Officer.

 

General and Administrative

 

General and administrative expenses for the three months ended March 31, 2018 were substantially consistent with general and administrative expenses for the three months ended March 31, 2017.

 

Included in general and administrative expenses were stock-based compensation charges of $0.4 million and $0.6 million for the three months ended March 31, 2017 and 2018, respectively.

 

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Interest Income, Net

 

The increase in interest income, net in the three months ended March 31, 2018 compared to the three months ended March 31, 2017 resulted from an increase of $202,000 in the interest rate yield during the three months ended March 31, 2018 as compared to the three months ended March 31, 2017, partially offset by a decrease of $24,000 due to the lower average short-term investment balances. There were no long-term investment balances at March 31, 2017 or 2018.

 

Liquidity and Capital Resources

 

We have funded our operations principally through sales of equity and debt securities, revenue from strategic collaborations, grants, and loans. As of March 31, 2018, we had cash, cash equivalents and investments of $173.1 million, which included $80.9 million of net proceeds from our public offering of 20,535,714 shares of our common stock that closed in March 2018. The following table sets forth the primary sources and uses of cash for each of the periods set forth below:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 

 

 

 

2017

 

2018

 

 

 

 

(in thousands)

 

Net cash used in operating activities

    

$

(10,483)

    

$

(7,705)

    

Net cash provided by (used in) investing activities

 

 

12,993

 

 

(4,162)

 

Net cash provided by (used in) financing activities

 

 

(77)

 

 

83,140

 

Net increase in cash and cash equivalents

 

$

2,433

 

$

71,273

 

 

Operating Activities

 

The cash used in operating activities for the three months ended March 31, 2017 and 2018 primarily resulted from our net loss adjusted for non-cash items and changes in operating assets and liabilities.

 

Investing Activities

 

The cash provided by or used in investing activities during the three months ended March 31, 2017 and 2018 was due to the net result of maturities and purchases of investments, which was partially offset by, or included, capital expenditures for equipment of $29,536 and $5,225, respectively.

 

Financing Activities

 

The cash used in financing activities during the three months ended March 31, 2017 consisted of stock repurchases for restricted stock units, or RSUs, that vested during the period, which was partially offset by net proceeds from the exercise of stock options. The cash provided by financing activities during the three months ended March 31, 2018 consisted of $80.9 million of net proceeds from our public offering of common stock that closed in March 2018 and $2.3 million of net proceeds from the exercise of stock options, which were partially offset by $0.1 million of stock repurchases for RSUs that vested during the period.    

 

Operating Capital Requirements

 

We expect to continue to incur significant operating losses for the next several years as we pursue the advancement of our product candidates through the research, development, regulatory and, potentially, the commercialization processes.

 

As of March 31, 2018, our cash, cash equivalents and investments were $173.1 million, which included $80.9 million of net proceeds from our public offering of 20,535,714 shares of our common stock that closed in March 2018. We believe that our current cash balance will be sufficient to fund our activities for at least the next 12 months, which include our focus on clinical development of 177Lu-PSMA-617 and our effort to generate proof-of-concept data for our EC17/CAR T-cell therapy program, but because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amounts of our

22


 

 

working capital requirements. Our future funding requirements will depend on many factors, including but not limited to:

 

·

the number and characteristics of the product candidates we pursue;

·

the scope, progress, results and costs of researching and developing our product candidates and conducting pre-clinical and clinical trials;

·

the timing of, and the costs involved in, obtaining regulatory approvals for our product candidates;

·

the cost of commercialization activities if any of our product candidates are approved for sale, including marketing, sales and distribution costs;

·

the cost of manufacturing any product candidates we successfully commercialize;

·

the costs involved in preparing, filing, prosecuting, maintaining, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;

·

the timing, payments, receipts and amount of sales of, or royalties on, our product candidates, if any; and

·

the costs we may incur and revenues we may generate in connection with in-licensing and out-licensing activities.

 

Until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through public or private equity or debt financings or other sources, such as strategic partnerships or licensing arrangements. The sale of additional equity securities by us would result in additional dilution to our stockholders. If we raise additional funds through the issuance of debt securities or convertible preferred stock, these securities may have rights senior to those of our common stock and could contain covenants that would restrict our operations. We do not know whether additional funding will be available on acceptable terms, or at all. If we are not able to secure additional funding when needed, we may have to delay, reduce the scope of or eliminate one or more of our clinical trials or research and development programs, or enter into collaboration or other arrangements with other companies to provide such funding for one or more of such clinical trials or programs in exchange for our affording such partner commercialization or other rights to the product candidates that are the subject of such clinical trials or programs. If we raise additional funds through collaboration and licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us.

 

Contractual Obligations and Commitments

 

There have been no significant changes during the three months ended March 31, 2018 to the items that we disclosed as our contractual obligations and commitments in our Form 10-K for the year ended December 31, 2017.

 

Off-Balance Sheet Arrangements

 

None.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

We are exposed to market risk related to changes in interest rates. As of March 31, 2018, we had cash, cash equivalents and investments of $173.1 million. The investments consisted primarily of U.S. Treasuries, corporate debt securities and cash equivalents. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of U.S. interest rates, particularly because our investments are in short-term marketable securities. Our short-term investments are subject to interest rate risk and will fall in value if market interest rates increase. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 10 percent change in interest rates would not have a material effect on the fair market value of our portfolio. We have the ability to hold our short-term investments until maturity, and therefore we do not expect that our results of operations or cash flows would be adversely affected by any change in market interest rates on our investments. We carry our investments based on publicly available information. We do not currently have any investment securities for which a market is not readily available or active.

 

We do not believe that any credit risk is likely to have a material impact on the value of our assets and liabilities.

 

We contract with contract research organizations, contract manufacturing organizations and investigational sites globally. We may be subject to fluctuations in foreign currency rates in connection with these agreements. A ten percent fluctuation in foreign currency rates would not have a material impact on our financial statements. We currently do not

23


 

 

hedge our foreign currency exchange risk, but as our operations in foreign countries expand we may consider the use of hedges.

 

Item 4.  Controls and Procedures

 

Conclusion Regarding Effectiveness of Disclosure Controls and Procedures

 

Our management, with the participation of our principal executive officer and principal financial officer, evaluated, as of the end of the period covered by this Quarterly Report on Form 10-Q, the effectiveness of our disclosure controls and procedures. Based on that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures as of such date are effective at the reasonable assurance level in ensuring that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, or the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There has been no change in our internal control over financial reporting during the three months ended March 31, 2018, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

24


 

 

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

None.

 

Item 1A. Risk Factors

 

Risk factors which could cause actual results to differ from our expectations and which could negatively impact our financial condition and results of operations are discussed below and elsewhere in this report. Additional risks and uncertainties not presently known to us or that are currently not believed to be significant to our business may also affect our actual results and could harm our business, financial condition, results of operations, cash flows or stock price. If any of these risks or uncertainties actually occurs, our business, financial condition, results of operations, cash flows or stock price could be materially and adversely affected. 

 

Risks Related to Our Business and Industry

 

We have incurred significant losses in each year since our inception, other than in 2014, and we anticipate that we will continue to incur significant losses for the foreseeable future. We may never again achieve or sustain profitability.

 

We are a clinical-stage biopharmaceutical company with a limited operating history. Biopharmaceutical product development is a highly speculative undertaking and involves a substantial degree of risk. We have not generated any revenue from product sales to date. For the three months ended March 31, 2018, we had a net loss of $8.6 million and a retained deficit of $317.2 million. We expect to continue to incur significant operating expenses for the next several years as we pursue the advancement of our product candidates through the research, development, regulatory and commercialization processes. As such, we are subject to all of the risks incident to the creation of new biopharmaceutical products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. If our product candidates fail in clinical trials, or do not gain regulatory approval, or fail to achieve market acceptance, we may never again be profitable. Even if we achieve profitability again in the future, we may not be able to sustain profitability in subsequent periods.

 

We currently have no approved products, which makes it difficult to assess our future viability.

 

To date, we have not derived any revenue from the sales of our products. Our operations to date have been limited to acquiring, developing and securing our technology, undertaking pre-clinical studies and clinical trials of our product candidates and engaging in research and development under collaboration agreements. We have not yet demonstrated an ability to obtain regulatory approval, formulate and manufacture commercial-scale products, or conduct sales and marketing activities necessary for successful product commercialization. Consequently, it is difficult to predict our future success and the viability of any commercial programs that we may choose to take forward. While we have in the past derived revenues from payments under collaboration agreements, all of such agreements have been terminated, and we have no current sources of revenue except for the recognition of remaining deferred revenue related to the upfront payment under the agreement with Nihon Medi-Physic Co., LTD.

 

We are highly dependent on the success of PSMA-617 product candidates, and we cannot give any assurance that we will successfully complete its clinical development, or that it will receive regulatory approval or be successfully commercialized.

 

In September 2017, we entered into a License Agreement with ABX, pursuant to which we acquired exclusive worldwide rights to develop and commercialize PSMA-617, including the drug candidate known as 177Lu-PSMA-617, an RLT. We intend to initiate, in the second quarter of 2018, the VISION trial, an international, prospective, open-label, multicenter, randomized phase 3 study of 177Lu-PSMA-617 enrolling up to 750 patients with progressive PSMA-positive mCRPC. The VISION trial may not be successful, and 177Lu-PSMA-617 may never receive regulatory approval or be successfully commercialized. We may fail to obtain necessary marketing approvals for 177Lu-PSMA-617 from the FDA or other regulatory authorities if our clinical development programs for 177Lu-PSMA-617 fail to demonstrate that it is safe and effective to the satisfaction of such authorities, or if we have inadequate financial or other resources to advance 177Lu-PSMA-617 through the necessary development activities. Even if 177Lu-PSMA-617 receives regulatory approval,

25


 

 

we may not be successful in marketing it for a number of reasons, including the introduction by our competitors of more clinically-effective or cost-effective alternatives or failure in our sales and marketing efforts. Any failure to obtain approval of 177Lu-PSMA-617 and successfully commercialize it would have a material and adverse impact on our business.

 

We cannot give any assurance that we will successfully complete the clinical development of any of our other product candidates, or that they will receive regulatory approval or be successfully commercialized.

 

We have terminated or significantly limited the development programs for product candidates other than PSMA-617 and EC17/CAR T-cell therapy product candidates. With respect to any other product candidates that we may pursue, they may never receive regulatory approval or be successfully commercialized. We may fail to obtain necessary marketing approvals from the FDA or other regulatory authorities if our clinical development programs fail to demonstrate that they are safe and effective to the satisfaction of such authorities, or if we have inadequate financial or other resources to advance our product candidates through the necessary development activities. Even if any of our product candidates receive regulatory approval, we may not be successful in marketing them for a number of reasons, including the introduction by our competitors of more clinically-effective or cost-effective alternatives or failure in our sales and marketing efforts.

 

The results of clinical trials may not be predictive of future results, and those trials may not satisfy the requirements of the FDA or other regulatory authorities.

 

The clinical trials of our product candidates are, and the manufacturing and marketing of any approved products will be, subject to extensive and rigorous review and regulation by numerous government authorities in the United States, Europe and in other countries where we intend to test and market our product candidates. Before obtaining regulatory approvals for the commercial sale of any product candidate, we must demonstrate through pre-clinical testing and clinical trials that the product candidate is safe and effective for use in each indication for which we intend to market such product candidate. This process takes many years and requires the expenditure of substantial financial and human resources and may include post-marketing trials and surveillance. To date, we have not completed any randomized phase 3 clinical trials.

 

Positive results from pre-clinical studies and early clinical trials, such as those of 177Lu-PSMA-617, should not be relied upon as evidence that later-stage or large-scale clinical trials will succeed. Like our past history with respect to certain product candidates, a number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials due to lack of efficacy or adverse safety profiles, even after promising results in earlier trials. We will be required to demonstrate with substantial evidence through adequate and well-controlled clinical trials that our product candidates are safe and effective for use in the target population before the regulatory authorities will approve our product candidates for commercial sale, and we cannot assure you that we will be able to do so.

 

In addition to the phase 3 clinical trial of 177Lu-PSMA-617 that we intend to initiate in the second quarter of 2018, certain third party investigators, including Dr. Michael Hofman of the Peter MacCallum Cancer Center in Melbourne, Australia, are conducting clinical trials of 177Lu-PSMA-617 and other product candidates containing PSMA-617. In addition, the German institutions that own the patent rights to PSMA617 have retained the right, under their license to ABX (under which we are the exclusive sublicensee), to conduct clinical trials of compounds containing PSMA-617 at their premises in Heidelberg, Germany, subject to our approval of the trial protocol. Current or possible future clinical trials of compounds containing PSMA-617 that are conducted by third party investigators outside of our control (in whole or in part) may generate clinical data that hinders our ability to obtain regulatory approvals for the development and/or commercialization of 177Lu-PSMA-617.

 

Further, our product candidates may not be approved even if they achieve the primary endpoints in phase 3 clinical trials or registration trials. The FDA or other regulatory authorities may disagree with our trial design or the interpretation of data from pre-clinical studies and clinical trials. In addition, the FDA and other regulatory authorities may change requirements for the approval of our product candidates even after reviewing and providing non-binding comments on a protocol for a pivotal phase 3 clinical trial that has the potential to result in approval. Regulatory authorities may also approve any of our product candidates for fewer or more limited indications than we request, may grant approval contingent on the performance of costly post-marketing clinical trials, or may approve a product candidate with a label that does not include the labeling claims necessary or desirable for the successful

26


 

 

commercialization of that product candidate. Any of the foregoing scenarios could materially harm the commercial prospects for our product candidates.

 

There is a high risk that our development and clinical activities will not result in commercial products, and we may be required to invest significant additional resources in our current development and clinical programs, to the exclusion of others, before it is known whether one or more of our product candidates will receive regulatory approval or be commercially introduced.

 

Our product candidates are in various stages of development and are prone to the risks of failure inherent in biopharmaceutical development. Development of our product candidates could be discontinued due to insufficient efficacy or unacceptable toxicity. In many cases, even if we ultimately obtain regulatory approval to market a product candidate, we will need to complete significant additional clinical trials before we can demonstrate that the product candidate is safe and effective to the satisfaction of the regulatory authorities involved. Clinical trials are expensive and uncertain processes that take years to complete. Failure can occur at any stage of the process. Further, even if a product candidate receives the required regulatory approvals, we cannot assure you that it will be successful commercially. In addition, while we invest in the technology and indications that we believe are most promising, financial and resource constraints may require us to forego or delay opportunities that may ultimately have greater commercial potential than those programs we are currently actively developing.

 

We may not achieve research, development and commercialization goals in the time frames that we publicly estimate, which could have an adverse impact on our business and could cause our stock price to decline.

 

We set goals, and make public statements regarding our expectations, regarding the timing of certain accomplishments, developments and milestones under our research and development programs. The actual timing of these events can vary significantly due to a number of factors, including, without limitation, the amount of time, effort and resources committed to our programs by us and any collaborators and the uncertainties inherent in the regulatory approval process. As a result, there can be no assurance that we or any collaborators will make regulatory submissions or receive regulatory approvals as planned or that we or any collaborators will be able to adhere to our current schedule for the achievement of key milestones under any of our programs. If we or any collaborators fail to achieve one or more of the milestones described above as planned, our business could be materially adversely affected and the price of our common stock could decline.

 

The coverage and reimbursement status of newly approved biopharmaceuticals is uncertain, and failure to obtain adequate coverage and adequate reimbursement of our product candidates could limit our ability to generate revenue.

 

There is significant uncertainty related to the third-party coverage and reimbursement of newly approved drugs. The commercial success of our product candidates, if approved, in both domestic and international markets will depend in part on the availability of coverage and adequate reimbursement from third-party payors, including government payors, such as the Medicare and Medicaid programs, and managed care organizations. Government and other third-party payors are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for new drugs and, as a result, they may not cover or provide adequate payment for our product candidates. These payors may conclude that our product candidates are less safe, less effective or less cost-effective than existing or later introduced products, and third-party payors may not approve our product candidates for coverage and reimbursement or may cease providing coverage and reimbursement for these product candidates. Consolidation and integration among healthcare providers and health plans has increased their purchasing power and impacted reimbursement, and could continue to do so in the future. Because each country has one or more payment systems, obtaining reimbursement in the United States and internationally may take significant time and cause us to spend significant resources. The failure to obtain coverage and adequate reimbursement for our product candidates or healthcare cost containment initiatives that limit or deny reimbursement for our product candidates may significantly reduce any future product revenue.

 

In the United States and in other countries, there have been and we expect there will continue to be a number of legislative and regulatory proposals to change the healthcare system in ways that could significantly affect our business. International, federal and state lawmakers regularly propose and, at times, enact legislation that would result in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products and services. The U.S. government and other governments have shown significant interest in pursuing healthcare reform. Such government-adopted reform measures may adversely impact the pricing of healthcare products and services in the United States or internationally and the amount of reimbursement available from governmental

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agencies or other third-party payors. In addition, in some foreign jurisdictions, there have been a number of legislative and regulatory proposals to change the healthcare system in ways that could affect our ability to sell our products profitably. The continuing efforts of U.S. and other governments, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce healthcare costs may adversely affect our ability to set satisfactory prices for our products, to generate revenues, and to achieve and maintain profitability.

 

In some countries, particularly in the European Union, prescription drug pricing is subject to governmental control. In these countries, pricing negotiations with governmental authorities can take considerable time after the receipt of marketing approval for a product candidate. To obtain reimbursement or pricing approval in some countries, we may be required to conduct additional clinical trials that compare the cost-effectiveness of our product candidates to other available therapies. If reimbursement of our product candidates is unavailable or limited in scope or amount in a particular country, or if pricing is set at unsatisfactory levels, we may be unable to achieve or sustain profitability of our products in such country.

 

Our development activities could be delayed or stopped for a number of reasons, many of which are outside our control, which could materially harm our financial results and the commercial prospects for our product candidates.

 

Each of our clinical trials requires the investment of substantial expense and time, and the timing of the commencement, continuation and completion of these clinical trials may be subject to significant delays relating to various causes. We do not know whether our current clinical trials will be completed on schedule, or at all, and we cannot guarantee that our future planned clinical trials will begin on time, or at all. Clinical trials must be conducted in accordance with FDA or applicable foreign government guidelines and are subject to oversight by the FDA, foreign governmental agencies and independent institutional review boards, or IRBs, at the medical institutions where the clinical trials are conducted. In addition, clinical trials must be conducted with supplies of our product candidates produced under current Good Manufacturing Practice, or cGMP, and other requirements in foreign countries, and may require large numbers of test patients. Our current and planned clinical trials could be substantially delayed or prevented by several factors, including:

 

·

limited number of, and competition for, suitable sites to conduct our clinical trials;

·

government or regulatory delays and changes in regulatory requirements, policy and guidelines;

·

delay or failure to obtain sufficient supplies of the product candidate for, or other drugs used in, our clinical trials as a result of our suppliers’ non-compliance with cGMP, or for other reasons;

·

delay or failure to reach agreement on acceptable clinical trial agreement terms with prospective sites or investigators; and

·

delay or failure to obtain IRB approval to conduct a clinical trial at a prospective site.

The completion of our clinical trials could also be substantially delayed or prevented by several factors, including:

 

·

slower than expected rates of patient recruitment and enrollment;

·

unforeseen safety issues;

·

lack of efficacy evidenced during clinical trials, which risk may be heightened given the advanced state of disease and lack of response to prior therapies of patients in certain clinical trials;

·

termination of our clinical trials by an IRB at one or more clinical trial sites;

·

inability or unwillingness of patients or medical investigators to follow our clinical trial protocols; and

·

inability to monitor patients adequately during or after treatment or high patient dropout rates.

 

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Our clinical trials may be suspended or terminated at any time by the FDA, other regulatory authorities or us. For example, in June 2017 we ended clinical development of EC1456 and stopped enrollment in our EC1456 phase 1b trial, as the assessment of trial data did not yield the level of clinical activity necessary to support continued advancement of EC1456. In December 2017, we stopped enrollment in our EC1456 ovarian cancer surgical trial. We cannot assure you that we will not terminate our current and future development programs.

 

Failure or significant delay in completing clinical trials for our product candidates could materially harm our financial results and the commercial prospects for our product candidates.

 

Our product candidates may cause undesirable side effects that could delay or prevent their regulatory approval or commercialization.