xncr_Current folio_10Q

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


 

FORM 10-Q

 

(Mark One)

 

 

 

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

 

For the quarterly period ended March 31, 2019

 

or

 

 

 

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

 


 

Commission file number: 001-36182

 

Xencor, Inc.

(Exact Name of Registrant as Specified in its Charter)

 

 

 

 

Delaware

 

20-1622502

(State or Other Jurisdiction of Incorporation

or Organization)

 

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

 

 

 

111 West Lemon Avenue, Monrovia, CA

 

91016

(Address of Principal Executive Offices)

 

(Zip Code)

 

(626) 305-5900

(Registrant’s Telephone Number, Including Area Code)

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒  No ☐

 

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

 

Large accelerated filer ☒   Accelerated filer ☐   Non-accelerated filer ☐   Smaller reporting company ☐ Emerging growth company ☐

 

If an emerging growth company, indicate by checkmark 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 Securities Exchange Act of 1934).  Yes ☐  No ☒

 

Indicate the number of shares of each of the issuer’s classes of common stock, as of the latest practicable date:

 

 

 

 

Class

 

Outstanding at May 2, 2019

Common stock, $0.01 par value

 

56,353,287

 

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

 

 

 

 

 

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common Stock, par value $0.01 per share

 

XNCR

 

NASDAQ

 

 

 

 

 


 

Table of Contents

Xencor, Inc.

 

Quarterly Report on FORM 10-Q for the quarter ended March 31, 2019

 

Table of Contents

 

 

 

 

 

Page

 

 

 

 

SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS

3

PART I. 

FINANCIAL INFORMATION

4

Item 1. 

Financial Statements

4

 

Balance Sheets as of March 31, 2019 (unaudited) and December 31, 2018

4

 

Statements of Comprehensive Income (Loss) for the Three Months ended March 31, 2019 and 2018 (unaudited)

5

 

Statement of Stockholders’ Equity as of March 31, 2019 (unaudited)

6

 

Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018 (unaudited)

7

 

Notes to Financial Statements (unaudited)

8

Item 2. 

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

24

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

30

Item 4. 

Controls and Procedures

31

 

 

 

PART II. 

OTHER INFORMATION

32

Item 1. 

Legal Proceedings

32

Item 1A. 

Risk Factors

32

Item 6. 

Exhibits

33

 

 

 

Signatures 

34

 

In this report, unless otherwise stated or the context otherwise indicates, references to “Xencor,” “the Company,” “we,” “us,” “our” and similar references refer to Xencor, Inc. The Xencor logo is a registered trademark of Xencor, Inc. This report also contains registered marks, trademarks and trade names of other companies. All other trademarks, registered marks and trade names appearing in this report are the property of their respective holders.

 

2


 

Table of Contents

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of federal securities laws. Forward-looking statements include statements that may relate to our plans, objectives, goals, strategies, future events, future revenues or performance, capital expenditures, financing needs and other information that is not historical information. Many of these statements appear, in particular, under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. Forward-looking statements can often be identified by the use of terminology such as “subject to”, “believe”, “anticipate”, “plan”, “expect”, “intend”, “estimate”, “project”, “may”, “will”, “should”, “would”, “could”, “can”, the negatives thereof, variations thereon and similar expressions, or by discussions of strategy.

 

All forward-looking statements, including, without limitation, our examination of historical operating trends, are based upon our current expectations and various assumptions. We believe there is a reasonable basis for our expectations and beliefs, but they are inherently uncertain. We may not realize our expectations, and our beliefs may not prove correct. Actual results could differ materially from those described or implied by such forward-looking statements. The following uncertainties and factors, among others (including those set forth under “Risk Factors”), could affect future performance and cause actual results to differ materially from those matters expressed in or implied by forward-looking statements:

 

·

our plans to research, develop and commercialize our product candidates;

 

·

our ongoing and planned clinical trials;

 

·

the timing of and our ability to obtain and maintain regulatory approvals for our product candidates;

 

·

our estimates regarding expenses, future revenue, capital requirements and needs for additional financing;

 

·

our ability to identify additional products or product candidates with significant commercial potential that are consistent with our business objectives;

 

·

the rate and degree of market acceptance and clinical utility of our products;

 

·

the capabilities and strategy of our suppliers and vendors including key manufacturers of our clinical drug supplies;

 

·

significant competition in our industry;

 

·

costs of litigation and the failure to successfully defend lawsuits and other claims against us;

 

·

our partners’ ability to advance drug candidates into, and successfully complete, clinical trials;

 

·

our ability to receive research funding and achieve anticipated milestones under our collaborations;

 

·

our intellectual property position;

 

·

loss or retirement of key members of management;

 

·

costs of compliance and our failure to comply with new and existing governmental regulations;

 

·

failure to successfully execute our growth strategy, including any delays in our planned future growth; and

 

·

our failure to maintain effective internal controls.

 

The factors, risks and uncertainties referred to above and others are more fully described under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 and subsequent Quarterly Reports on Form 10-Q. Forward-looking statements should be regarded solely as our current plans, estimates and beliefs. You should not place undue reliance on forward-looking statements. We cannot guarantee future results, events, levels of activity, performance or achievements. We do not undertake and specifically decline any obligation to update, republish or revise forward-looking statements to reflect future events or circumstances or to reflect the occurrences of unanticipated events.

3


 

Table of Contents

PART I — FINANCIAL INFORMATION

Item1.          Financial Statements

 

Xencor, Inc.

Balance Sheets

(In thousands, except share amounts)

 

 

 

 

 

 

 

 

 

 

    

March 31, 

    

December 31, 

 

 

2019

 

2018

 

 

(unaudited)

 

 

Assets

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,858

 

$

26,246

Marketable securities

 

 

318,498

 

 

268,115

Accounts receivable

 

 

137,676

 

 

10,187

Income tax receivable

 

 

1,206

 

 

804

Prepaid expenses and other current assets

 

 

9,433

 

 

10,375

Total current assets

 

 

488,671

 

 

315,727

Property and equipment, net

 

 

11,456

 

 

11,813

Patents, licenses, and other intangible assets, net

 

 

12,737

 

 

11,969

Marketable securities - long term

 

 

172,472

 

 

236,108

Income tax receivable

 

 

402

 

 

804

Other assets

 

 

11,265

 

 

311

Total assets

 

$

697,003

 

$

576,732

Liabilities and stockholders’ equity

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

Accounts payable

 

$

5,485

 

$

3,797

Accrued expenses

 

 

5,705

 

 

9,662

Deferred rent

 

 

 —

 

 

315

Lease liabilities

 

 

1,987

 

 

 —

Deferred revenue

 

 

59,244

 

 

40,079

Income tax liability

 

 

900

 

 

 —

Total current liabilities

 

 

73,321

 

 

53,853

Deferred rent, net of current portion

 

 

 —

 

 

1,198

Lease liabilities, net of current portion

 

 

10,221

 

 

 —

Deferred revenue, net of current portion

 

 

3,896

 

 

 —

Total liabilities

 

 

87,438

 

 

55,051

Commitments and contingencies

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

Preferred stock, $0.01 par value: 10,000,000 authorized shares; -0- issued and outstanding shares at March 31, 2019 and December 31, 2018

 

 

 —

 

 

 —

Common stock, $0.01 par value: 200,000,000 authorized shares at March 31, 2019 and December 31, 2018; 56,349,389 issued and outstanding at March 31, 2019 and 56,279,542 issued and outstanding at December 31, 2018

 

 

564

 

 

563

Additional paid-in capital

 

 

851,888

 

 

845,366

Accumulated other comprehensive income (loss)

 

 

345

 

 

(971)

Accumulated deficit

 

 

(243,232)

 

 

(323,277)

Total stockholders’ equity

 

 

609,565

 

 

521,681

Total liabilities and stockholders’ equity

 

$

697,003

 

$

576,732

 

See accompanying notes.

4


 

Table of Contents

Xencor, Inc.

Statements of Comprehensive Income (Loss)

(unaudited)

(In thousands, except share and per share data)

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2019

    

2018

 

 

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

 

Collaborations and licenses

 

$

111,939

 

$

 —

 

Operating expenses

 

 

 

 

 

 

 

Research and development

 

 

28,183

 

 

26,087

 

General and administrative

 

 

5,512

 

 

4,562

 

Total operating expenses 

 

 

33,695

 

 

30,649

 

Income (loss) from operations 

 

 

78,244

 

 

(30,649)

 

Other income (expenses)

 

 

 

 

 

 

 

Interest income, net

 

 

2,886

 

 

1,154

 

Other income (expense)

 

 

(185)

 

 

 2

 

Total other income, net

 

 

2,701

 

 

1,156

 

 

 

 

 

 

 

 

 

Net income (loss) before income taxes

 

 

80,945

 

 

(29,493)

 

Income tax expense

 

 

900

 

 

 —

 

Net income (loss)

 

 

80,045

 

 

(29,493)

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss)

 

 

 

 

 

 

 

Net unrealized gain (loss) on marketable securities

 

 

1,316

 

 

(393)

 

Comprehensive income (loss)

 

$

81,361

 

$

(29,886)

 

 

 

 

 

 

 

 

 

Basic net income (loss) per common share

 

$

1.42

 

$

(0.62)

 

Diluted net income (loss) per common share

 

$

1.38

 

$

(0.62)

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

56,302,967

 

 

47,753,922

 

 

 

 

 

 

 

 

 

Diluted weighted average common shares outstanding

 

 

58,009,878

 

 

47,753,922

 

 

See accompanying notes.  

5


 

Table of Contents

Xencor, Inc.

Statement of Stockholders’ Equity

(in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

Total

 

 

Common Stock

 

Paid

 

Comprehensive

 

Accumulated

 

Stockholders’

Stockholders’ Equity

 

Shares

 

Amount

 

in-Capital

 

Loss

 

Deficit

 

Equity

Balance, December 31, 2018

 

56,279,542

 

 

563

 

 

845,366

 

 

(971)

 

 

(323,277)

 

 

521,681

Issuance of common stock upon exercise of stock awards

 

58,536

 

 

 1

 

 

666

 

 

 —

 

 

 —

 

 

667

Issuance of restricted stock units

 

11,311

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Comprehensive loss

 

 —

 

 

 —

 

 

 —

 

 

1,316

 

 

80,045

 

 

81,361

Stock-based compensation

 

 —

 

 

 —

 

 

5,856

 

 

 —

 

 

 

 

 

5,856

Balance, March 31, 2019 (unaudited)

 

56,349,389

 

$

564

 

$

851,888

 

$

345

 

$

(243,232)

 

$

609,565

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Other

 

 

 

 

Total

 

 

Common Stock

 

Paid

 

Comprehensive

 

Accumulated

 

Stockholders’

Stockholders’ Equity

 

Shares

 

Amount

 

in-Capital

 

Loss

 

Deficit

 

Equity

Balance, December 31, 2017

 

47,002,488

 

 

470

 

 

570,670

 

 

(1,808)

 

 

(287,286)

 

 

282,046

Adoption of ASC 606

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

34,418

 

 

34,418

Balance December 31, 2017 as revised

 

47,002,488

 

 

470

 

 

570,670

 

 

(1,808)

 

 

(252,868)

 

 

316,464

Sale of common stock, net of issuance cost

 

8,395,000

 

 

84

 

 

245,421

 

 

 —

 

 

 —

 

 

245,505

Issuance of common stock upon exercise of stock awards

 

219,387

 

 

 2

 

 

1,108

 

 

 —

 

 

 —

 

 

1,110

Comprehensive loss

 

 —

 

 

 —

 

 

 —

 

 

(393)

 

 

(29,493)

 

 

(29,886)

Stock-based compensation

 

 —

 

 

 —

 

 

4,471

 

 

 —

 

 

 —

 

 

4,471

Balance, March 31, 2018 (unaudited)

 

55,616,875

 

$

556

 

$

821,670

 

$

(2,201)

 

$

(282,361)

 

$

537,664

 

See accompanying notes.  

6


 

Table of Contents

Xencor, Inc.

Statements of Cash Flows

(unaudited)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2019

    

2018

Cash flows from operating activities

 

 

 

 

 

Net income (loss)

 

$

80,045

 

$

(29,493)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

996

 

 

730

Amortization of premium and accretion of discount on marketable securities

 

 

(601)

 

 

480

Stock-based compensation

 

 

5,856

 

 

4,471

Abandonment of capitalized intangible assets

 

 

58

 

 

 5

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(127,489)

 

 

44

Interest receivable

 

 

31

 

 

(309)

Prepaid expenses and other assets

 

 

942

 

 

(1,043)

Accounts payable

 

 

1,689

 

 

1,654

Accrued expenses

 

 

(3,957)

 

 

(869)

Income taxes

 

 

900

 

 

(157)

Deferred rent

 

 

(1,513)

 

 

242

Lease liabilities and ROU assets

 

 

1,254

 

 

 —

Deferred revenue

 

 

23,061

 

 

 —

Net cash used in operating activities

 

 

(18,728)

 

 

(24,245)

Cash flows from investing activities

 

 

 

 

 

 

Purchase of marketable securities

 

 

(49,856)

 

 

(31,697)

Purchase of intangible assets

 

 

(1,051)

 

 

(389)

Purchase of property and equipment

 

 

(415)

 

 

(2,346)

Proceeds from maturities of marketable securities

 

 

64,995

 

 

47,020

Repayment of loan

 

 

 —

 

 

86

Net cash provided by investing activities

 

 

13,673

 

 

12,674

Cash flows from financing activities

 

 

 

 

 

 

Proceeds from issuance of common stock upon exercise of stock awards

 

 

667

 

 

1,110

Proceeds from issuance of common stock

 

 

 —

 

 

260,245

Common stock issuance costs

 

 

 —

 

 

(14,740)

Net cash provided by financing activities

 

 

667

 

 

246,615

Net increase (decrease) in cash and cash equivalents

 

 

(4,388)

 

 

235,044

Cash and cash equivalents, beginning of period

 

 

26,246

 

 

16,528

Cash and cash equivalents, end of period

 

$

21,858

 

$

251,572

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

Interest

 

$

 4

 

$

 3

Income taxes

 

$

 —

 

$

170

Supplemental disclosures of non-cash investing activities

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities, net of tax

 

$

1,316

 

$

(393)

 

See accompanying notes.  

 

 

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Table of Contents

Xencor, Inc.

 

Notes to Financial Statements

(unaudited)

 

March 31, 2019

 

1. Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited interim financial statements for Xencor, Inc. (the Company, Xencor, we or us) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information. Certain amounts in the prior period financial statements have been revised to conform to the presentation of the current period financial statements. See “Recent Accounting Pronouncements – Pronouncements Adopted in 2019.” The financial statements include all adjustments (consisting only of normal recurring adjustments) that the management of the Company believes are necessary for a fair presentation of the periods presented. The preparation of interim financial statements requires the use of management’s estimates and assumptions that affect reported amounts of assets and liabilities at the date of the interim financial statements and the reported revenues and expenditures during the reported periods. These interim financial results are not necessarily indicative of the results expected for the full fiscal year or for any subsequent interim period.

 

The accompanying unaudited interim financial statements and related notes should be read in conjunction with the audited financial statements and notes thereto included in the Company’s 2018 Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on February 26, 2019.

 

Use of Estimates

 

The preparation of interim financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, other comprehensive gain (loss) and the related disclosures. On an ongoing basis, management evaluates its estimates, including estimates related to its accrued clinical trial and manufacturing development expenses, stock-based compensation expense, intangible assets and related amortization. Significant estimates in these interim financial statements include estimates made for accrued research and development expenses, stock-based compensation expenses, intangible assets and related amortization, estimated standalone selling price of performance obligations, and recoverability of deferred tax assets.

 

Intangible Assets

 

The Company maintains definite-lived intangible assets related to certain capitalized costs of acquired licenses and third-party costs incurred in establishing and maintaining its intellectual property rights to its platform technologies and development candidates. These assets are amortized over their useful lives, which are estimated to be the remaining patent life or the contractual term of the license. The straight-line method is used to record amortization expense. The Company assesses its intangible assets for impairment if indicators are present or changes in circumstances suggest that impairment may exist. There were no impairment charges recorded for the three-months ended March 31, 2019 and 2018.

 

The Company capitalizes certain in-process intangible assets that are abandoned when they are no longer pursued. There was no material abandonment of in-process intangible assets during the three-month periods ended March 31, 2019 or 2018.

 

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Table of Contents

Marketable Securities

 

The Company has an investment policy that includes guidelines on acceptable investment securities, minimum credit quality, maturity parameters, and concentration and diversification. The Company invests its excess cash primarily in marketable debt securities issued by investment grade institutions.

 

The Company considers its marketable debt securities to be available-for-sale. These assets are carried at fair value and the unrealized gains and losses are included in accumulated other comprehensive income (loss). Accrued interest on marketable debt securities is included in marketable securities. If a decline in the value of a marketable debt security in the Company’s investment portfolio is deemed to be other-than-temporary, the Company writes down the security to its current fair value and recognizes a loss as a charge against income. The Company reviews its portfolio of marketable debt securities, using both quantitative and qualitative factors, to determine if declines in fair value below cost are other-than-temporary.

 

Recent Accounting Pronouncements

 

Pronouncements Adopted in 2019

 

Effective January 1, 2019, the Company adopted Accounting Standards Codification Topic 842 (ASC 842), Leases, which requires lessees to recognize a right-of-use (ROU) asset and a lease liability for leases with terms greater than 12 months and also requires disclosures about the amount, timing and uncertainty of cash flows arising from such leases. The Company adopted ASC 842 using the optional transition method provided under ASU 2018-11, which did not require adjustments to comparative periods nor require modified disclosures in those comparative periods. Under this method, the Company adjusted its financial statements for the cumulative effect of the adoption of ASC 842 at the beginning of January 1, 2019.

 

At inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances. For leases with a term of one year or longer where the Company is the lessee, ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent an obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. The interest rate implicit with such leases is typically not readily determined. The Company has determined the appropriate incremental borrowing rate by reference to an estimate of the current market borrowing rate for a collateralized asset over a similar term as the lease term.

 

The new standard will impact our reporting of the leases to our facilities in Monrovia and San Diego. Under ASC 842, tenant allowances under operating leases are no longer tracked separately as a deferred rent liability; instead, it will be integrated as part of the ROU asset. As a result, we are required to record an adjustment of the cumulative effect to the beginning balance for deferred rent liability and adopt the use of ROU asset and lease liability. We recorded lease liabilities of $12.7 million and ROU assets of $11.4 million for lease agreements in effect as of January 1, 2019. The ROU asset is included in Other assets on the balance sheet as of March 31, 2019. This resulted in an increase to the beginning balance on both assets and liabilities after the adjustment of $11.2 million, with no impact on our retained earnings.

 

Effective January 1, 2019, the Company adopted ASU No. 2018-07, Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share-based payments issued to nonemployees for goods and services. The standard requires a modified retrospective transition approach, with a cumulative adjustment to retained earnings as of adoption date, for all liability-classified awards that have not been settled as of the adoption date and equity-classified nonemployee awards for which a measurement date has not been established.  The adoption of this standard did not have any impact on the Company’s financial statements.

 

 There have been no other material changes to the significant accounting policies previously disclosed in the Company’s 2018 Annual Report on Form 10-K.

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Table of Contents

 

2. Fair Value of Financial Instruments

 

Financial instruments included in the financial statements include cash equivalents, marketable securities, accounts receivable, accounts payable and accrued expenses. Marketable securities and cash equivalents are carried at fair value. The fair value of the other financial instruments closely approximates their fair value due to their short-term maturities.

 

The Company accounts for recurring and non-recurring fair value measurements in accordance with FASB Accounting Standards Codification ASC 820, Fair Value Measurements and Disclosures (ASC 820). ASC 820 defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value, and requires expanded disclosure about fair value measurements. The ASC 820 hierarchy ranks the quality of reliable inputs, or assumptions, used in the determination of fair value and requires assets and liabilities carried at fair value to be classified and disclosed in one of the following three categories:

 

Level 1—Fair Value is determined by using unadjusted quoted prices that are available in active markets for identical assets or liabilities.

 

Level 2—Fair Value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in markets that are not active. Related inputs can also include those used in valuation or other pricing models, such as interest rates and yield curves that can be corroborated by observable market data.

 

Level 3—Fair value is determined by inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgments to be made by the reporting entity –e.g. determining an appropriate discount factor for illiquidity associated with a given security.

 

The Company measures the fair value of financial assets using the highest level of inputs that are reasonably available as of the measurement date. The assets recorded at fair value are classified within the hierarchy as follows for the periods reported (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2019

 

December 31, 2018

 

    

Total

    

    

 

 

 

 

    

Total

    

    

 

 

 

 

 

 

Fair Value

 

Level 1

 

Level 2

 

Fair Value

 

Level 1

 

Level 2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market Funds

 

$

15,625

 

$

15,625

 

$

 —

 

$

18,270

 

$

18,270

 

$

 —

Corporate Securities

 

 

105,621

 

 

 —

 

 

105,621

 

 

104,967

 

 

 —

 

 

104,967

Government Securities

 

 

385,349

 

 

 —

 

 

385,349

 

 

399,256

 

 

 —

 

 

399,256

 

 

$

506,595

 

$

15,625

 

$

490,970

 

$

522,493

 

$

18,270

 

$

504,223

 

Our policy is to record transfers of assets between Level 1 and Level 2 at their fair values as of the end of each reporting period, consistent with the date of the determination of fair value. During the three months ended March 31, 2019 and 2018, there were no transfers between Level 1 and Level 2. The Company does not have any Level 3 assets or liabilities.

 

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3. Net Income (Loss) Per Share 

 

We compute basic net income (loss) per common share by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period without consideration of common stock equivalents. Diluted net income (loss) per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common stock equivalents outstanding for the period. The treasury stock method is used to determine the dilutive effect of the Company’s stock option grants, employee stock purchase plan (ESPP), and restricted stock units (RSUs). Potentially dilutive securities consisting of stock issuable under options, ESPP, and RSUs are not included in the per common share calculation in periods where there is a net loss where the inclusion of such shares would have had an antidilutive effect.

 

Basic and diluted net income (loss) per common share is computed as follows (in thousands except share and per share data):

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31, 

 

 

    

2019

    

2018

    

 

 

(in thousands, except share and per share data)

Numerator:

 

 

 

 

 

 

 

Net income (loss) attributable to common stockholders

 

$

80,045

 

$

(29,493)

 

Denominator:

 

 

 

 

 

 

 

Weighted-average common shares outstanding used in computing basic net income (loss)

 

 

56,302,967

 

 

47,753,922

 

Weighted-average common shares outstanding used in computing diluted net income (loss)

 

 

58,009,878

 

 

47,753,922

 

Basic net income (loss) per common share

 

$

1.42

 

$

(0.62)

 

Diluted net income (loss) per common share

 

$

1.38

 

$

(0.62)

 

 

For the three months ended March 31, 2019, potentially dilutive securities consisting of stock options and RSUs were included in the diluted net income per common share calculation. For the three months ended March 31, 2018, all outstanding potentially dilutive securities have been excluded from the calculation of diluted net loss per common share as the effect of including such securities would have been antidilutive.

 

The table below summarizes the number of common stock equivalents that were excluded in the calculation of the weighted-average common shares outstanding used in computing diluted net income (loss) because the inclusion of such shares would have had an antidilutive effect as follows:

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2019

    

2018

 

 

(in thousands)

Options to purchase common stock and RSU grants

 

 —

 

1,573

 

 

 

4. Comprehensive Income (Loss)

 

Comprehensive income (loss) is comprised of net income (loss) and other comprehensive income (loss). For the three months ended March 31, 2019 and 2018, the only component of other comprehensive income (loss) is net unrealized gain (loss) on marketable securities. There were no material reclassifications out of accumulated other comprehensive income (loss) during the three months ended March 31, 2019 and 2018.

 

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5. Marketable Securities

 

The Company’s marketable debt securities held as of March 31, 2019 and December 31, 2018 are summarized below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

    

Amortized

    

Unrealized

 

Unrealized

    

 

March 31, 2019

 

Cost

 

Gains

 

Losses

 

Fair Value

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Money Market Funds

 

$

15,625

 

$

 —

 

$

 —

 

$

15,625

Corporate Securities

 

 

105,623

 

 

69

 

 

(71)

 

 

105,621

Government Securities

 

 

384,993

 

 

590

 

 

(234)

 

 

385,349

 

 

$

506,241

 

$

659

 

$

(305)

 

$

506,595

 

 

 

 

 

 

 

 

 

 

 

 

 

Reported as

 

 

 

 

 

 

 

 

 

 

 

 

    Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

$

15,625

    Marketable securities

 

 

 

 

 

 

 

 

 

 

 

490,970

Total investments

 

 

 

 

 

 

 

 

 

 

$

506,595

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross

 

Gross

 

 

 

 

    

Amortized

    

Unrealized

 

Unrealized

    

 

December 31, 2018

 

Cost

 

Gains

 

Losses

 

Fair Value

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Money Market Funds

 

$

18,270

 

$

 —

 

$

 —

 

$

18,270

Corporate Securities

 

 

105,311

 

 

 1

 

 

(345)

 

 

104,967

Government Securities

 

 

399,873

 

 

187

 

 

(804)

 

 

399,256

 

 

$

523,454

 

$

188

 

$

(1,149)

 

$

522,493

 

 

 

 

 

 

 

 

 

 

 

 

 

Reported as

 

 

 

 

 

 

 

 

 

 

 

 

    Cash and cash equivalents

 

 

 

 

 

 

 

 

 

 

$

18,270

    Marketable securities

 

 

 

 

 

 

 

 

 

 

 

504,223

Total investments

 

 

 

 

 

 

 

 

 

 

$

522,493

 

The maturities of the Company’s marketable debt securities are as follows:

 

 

 

 

 

 

 

 

 

 

Amortized

    

Estimated

March 31, 2019

 

Cost

 

Fair Value

    (in thousands)

 

 

 

 

 

 

    Mature in one year or less

 

$

318,685

 

$

318,498

    Mature within two years

 

 

171,931

 

 

172,472

 

 

$

490,616

 

$

490,970

 

 

 

 

 

 

 

 

 

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The unrealized losses on available-for-sale investments and their related fair values as of March 31, 2019 and December 31, 2018 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 months

 

12 months or greater

March 31, 2019

 

 

Fair value

 

 

Unrealized losses

 

 

Fair value

 

 

Unrealized losses

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Corporate Securities

 

$

93,071

 

$

(54)

 

$

12,550

 

$

 -

Government Securities

 

 

225,427

 

 

(132)

 

 

159,922

 

 

 -

 

 

$

318,498

 

$

(186)

 

$

172,472

 

$

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less than 12 months

 

12 months or greater

December 31, 2018

 

 

Fair value

 

 

Unrealized losses

 

 

Fair value

 

 

Unrealized losses

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Corporate Securities

 

$

84,770

 

$

(310)

 

$

20,198

 

$

(34)

Government Securities

 

 

183,345

 

 

(667)

 

 

215,910

 

 

 -

 

 

$

268,115

 

$

(977)

 

$

236,108

 

$

(34)

 

The unrealized losses from the listed securities are due to a change in the interest rate environment and not a change in the credit quality of the securities.

 

The Company does not intend to sell these securities, and it is not more likely than not that the Company will be required to sell the securities before recovery of the amortized cost basis. Therefore, the Company did not consider these securities to be other-than-temporarily impaired as of March 31, 2019 or December 31, 2018.

 

 

 

6. Sale of Additional Common Stock

 

In March 2018, we completed the sale of 8,395,000 shares of common stock which included shares issued pursuant to our underwriters’ exercise of their over-allotment option pursuant to a follow-on financing. We received net proceeds of  $245.5 million after underwriting discounts, commissions and offering expenses.

 

 

7. Stock Based Compensation

 

Our Board of Directors and the requisite stockholders previously approved the 2010 Equity Incentive Plan (the 2010 Plan). In October 2013, our Board of Directors approved the 2013 Equity Incentive Plan (the 2013 Plan) and in November 2013 our stockholders approved the 2013 Plan which became effective as of December 3, 2013. As of December 2, 2013, we suspended the 2010 Plan and no additional awards may be granted under the 2010 Plan. Any shares of common stock covered by awards granted under the 2010 Plan that terminate after December 2, 2013 by expiration, forfeiture, cancellation or other means without the issuance of such shares will be added to the 2013 Plan reserve.

 

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As of March 31, 2019, the total number of shares of common stock available for issuance under the 2013 Plan is 10,479,256 which includes 2,684,456 shares of common stock that were available for issuance under the 2010 Plan as of the effective date of the 2013 Plan. Unless otherwise determined by the Board, beginning January 1, 2014, and continuing until the expiration of the 2013 Plan, the total number of shares of common stock available for issuance under the 2013 Plan will automatically increase annually on January 1 of each year by 4% of the total number of issued and outstanding shares of common stock as of December 31 of the immediate preceding year. Pursuant to approval by our board on January 1, 2019, the total number of shares of common stock available for issuance under the 2013 Plan was increased by 2,251,181 shares. As of March 31, 2019, a total of 8,093,734 options have been issued under the 2013 Plan.

 

In November 2013, our Board of Directors and stockholders approved the 2013 Employee Stock Purchase Plan (ESPP), which became effective as of December 5, 2013. We have reserved a total of 581,286 shares of common stock for issuance under the ESPP. Unless otherwise determined by our Board, beginning on January 1, 2014, and continuing until the expiration of the ESPP, the total number of shares of common stock available for issuance under the ESPP will automatically increase annually on January 1 by the lesser of (i) 1% of the total number of issued and outstanding shares of common stock as of December 31 of the immediately preceding year, or (ii) 621,814 shares of common stock. Pursuant to approval by our Board of Directors, there was no increase in the number of authorized shares in the ESPP in 2019. As of March 31, 2019, we have issued a total of 349,716 shares of common stock under the ESPP.

 

During the three months ended March 31, 2019, the Company awarded 28,566 Restricted Stock Units (RSUs) to certain employees. Vesting of these awards is in three equal annual installments and is contingent on continued service to the Company. The fair value of these awards is determined based on the intrinsic value of the stock on the date of grant and will be recognized as stock-based compensation expense over the requisite service period. As of March 31, 2019, we have granted a total of 62,499 shares of common stock for RSUs.

 

Total employee, director and non-employee stock-based compensation expense recognized for the three months ended March 31, 2019 and 2018 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

    

2019

    

2018

General and administrative

 

$

1,854

 

$

1,617

Research and development

 

 

4,002

 

 

2,854

 

 

$

5,856

 

$

4,471

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31, 

 

 

2019

    

2018

Stock options

 

$

5,525

 

$

4,276

ESPP

 

 

217

 

 

163

Restricted stock units

 

 

114

 

 

32

 

 

$

5,856

 

$

4,471

 

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The following table summarizes option activity under our stock plans and related information:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

    

    

Weighted

 

Weighted

 

 

 

 

 

 

Average

 

Average

 

 

 

 

Number of

 

Exercise

 

Remaining

 

Aggregate

 

 

Shares subject

 

Price

 

Contractual

 

Intrinsic

 

 

to outstanding

 

(Per

 

Term

 

Value

 

 

options

 

Share)

 

(in years)

 

(in thousands)

Balances at December 31, 2018

 

5,966,928

 

$

19.71

 

 

7.51

 

 

 

Options granted

 

1,342,447

 

$

36.25

 

 

 

 

 

 

Options forfeited

 

(51,825)

 

$

26.28