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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended December 31, 2015

 

OR

 

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

 

For the transition period from            to           

 

Commission file number 0-17999

 

ImmunoGen, Inc.

 

Massachusetts

 

04-2726691

(State or other jurisdiction of incorporation or
organization)

 

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

 

830 Winter Street, Waltham, MA 02451

(Address of principal executive offices, including zip code)

 

(781) 895-0600

(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.  x Yes  o 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  x Yes  o No

 

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

 

Large accelerated filer x

 

Accelerated filer o

 

 

 

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

 

Smaller reporting company o

 

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

 

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

 

Shares of common stock, par value $.01 per share: 87,060,869 shares outstanding as of January 29, 2016.

 

 

 



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IMMUNOGEN, INC.

FORM 10-Q

FOR THE QUARTER ENDED DECEMBER 31, 2015

TABLE OF CONTENTS

 

Item

 

Page Number

 

 

 

 

 

 

Part I

 

1.

 

Financial Statements (Unaudited):

 

 

 

 

 

1a.

 

Consolidated Balance Sheets as of December 31, 2015 and June 30, 2015

2

 

 

 

 

1b.

 

Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended December 31, 2015 and 2014

3

 

 

 

 

1c.

 

Consolidated Statements of Cash Flows for the six months ended December 31, 2015 and 2014

4

 

 

 

 

1d.

 

Notes to Consolidated Financial Statements

5

 

 

 

 

2.

 

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

18

 

 

 

 

3.

 

Quantitative and Qualitative Disclosures about Market Risk

30

 

 

 

 

4.

 

Controls and Procedures

31

 

 

 

 

 

 

Part II

 

 

 

 

 

1A.

 

Risk Factors

31

 

 

 

 

6.

 

Exhibits

32

 

 

 

 

 

 

Signatures

33

 

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ITEM 1. Financial Statements

 

IMMUNOGEN, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

In thousands, except per share amounts

 

 

 

December 31,
2015

 

June 30,
2015

 

ASSETS

 

 

 

 

 

Cash and cash equivalents

 

$

212,283

 

$

278,109

 

Accounts receivable

 

803

 

5,088

 

Unbilled revenue

 

885

 

714

 

Inventory

 

1,537

 

2,935

 

Current portion of deferred financing costs

 

1,120

 

1,159

 

Prepaid and other current assets

 

6,618

 

4,175

 

Total current assets

 

223,246

 

292,180

 

Property and equipment, net of accumulated depreciation

 

21,518

 

16,254

 

Deferred financing costs, net of current portion

 

3,874

 

4,415

 

Other assets

 

2,942

 

974

 

 

 

 

 

 

 

Total assets

 

$

251,580

 

$

313,823

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

Accounts payable

 

$

13,404

 

$

8,138

 

Accrued compensation

 

5,455

 

8,346

 

Other accrued liabilities

 

7,718

 

10,441

 

Current portion of deferred lease incentive

 

646

 

646

 

Current portion of liability related to the sale of future royalties

 

15,132

 

7,906

 

Current portion of deferred revenue

 

1,545

 

333

 

Total current liabilities

 

43,900

 

35,810

 

 

 

 

 

 

 

Deferred lease incentive, net of current portion

 

5,978

 

6,301

 

Deferred revenue, net of current portion

 

32,041

 

40,855

 

Liability related to the sale of future royalties, net of current portion

 

182,176

 

191,756

 

Other long-term liabilities

 

4,171

 

3,997

 

Total liabilities

 

268,266

 

278,719

 

Commitments and contingencies (Note E)

 

 

 

 

 

Shareholders’ equity:

 

 

 

 

 

Preferred stock, $0.01 par value; authorized 5,000 shares; no shares issued and outstanding

 

 

 

Common stock, $0.01 par value; authorized 150,000 shares; issued and outstanding 87,040 and 86,579 shares as of December 31, 2015 and June 30, 2015, respectively

 

870

 

866

 

Additional paid-in capital

 

758,281

 

743,108

 

Accumulated deficit

 

(775,837

)

(708,870

)

Total shareholders’ equity

 

(16,686

)

35,104

 

Total liabilities and shareholders’ equity

 

$

251,580

 

$

313,823

 

 

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

 

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IMMUNOGEN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

In thousands, except per share amounts

 

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

License and milestone fees

 

$

10,692

 

$

41,417

 

$

16,762

 

$

47,651

 

Royalty revenue

 

195

 

4,625

 

195

 

8,791

 

Non-cash royalty revenue related to the sale of future royalties

 

6,291

 

 

11,975

 

 

Research and development support

 

848

 

832

 

1,620

 

1,608

 

Clinical materials revenue

 

3

 

1,426

 

2,328

 

3,453

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

18,029

 

48,300

 

32,880

 

61,503

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

38,199

 

27,647

 

73,331

 

55,665

 

General and administrative

 

8,054

 

6,872

 

16,383

 

13,967

 

 

 

 

 

 

 

 

 

 

 

Total operating expenses

 

46,253

 

34,519

 

89,714

 

69,632

 

 

 

 

 

 

 

 

 

 

 

(Loss) income from operations

 

(28,224

)

13,781

 

(56,834

)

(8,129

)

 

 

 

 

 

 

 

 

 

 

Investment income, net

 

60

 

14

 

111

 

22

 

Non-cash interest expense on liability related to the sale of future royalties

 

(5,059

)

 

(10,202

)

 

Other expense, net

 

(4

)

(160

)

(42

)

(540

)

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(33,227

)

$

13,635

 

$

(66,967

)

$

(8,647

)

 

 

 

 

 

 

 

 

 

 

Basic and diluted net (loss) income per common share

 

$

(0.38

)

$

0.16

 

$

(0.77

)

$

(0.10

)

 

 

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

86,970

 

85,935

 

86,904

 

85,904

 

Dilutive impact of potential common shares

 

 

730

 

 

 

Diluted weighted average common shares outstanding

 

86,970

 

86,665

 

86,904

 

85,904

 

Total comprehensive (loss) income

 

$

(33,227

)

$

13,635

 

$

(66,967

)

$

(8,647

)

 

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

 

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IMMUNOGEN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

In thousands, except per share amounts

 

 

 

Six Months ended December 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Cash flows from operating activities:

 

 

 

 

 

Net loss

 

$

(66,967

)

$

(8,647

)

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

 

 

 

 

 

Non-cash royalty revenue related to sale of future royalties

 

(11,975

)

 

Non-cash interest expense on liability related to sale of future royalties

 

10,202

 

 

Depreciation and amortization

 

2,387

 

2,818

 

Gain on sale/disposal of fixed assets

 

(26

)

(7

)

Stock and deferred share unit compensation

 

10,385

 

9,102

 

Deferred rent

 

56

 

127

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

4,285

 

(1,213

)

Unbilled revenue

 

(171

)

751

 

Inventory

 

1,398

 

1,031

 

Prepaid and other current assets

 

(2,443

)

167

 

Other assets

 

(1,968

)

164

 

Accounts payable

 

3,174

 

794

 

Accrued compensation

 

(2,891

)

(2,186

)

Other accrued liabilities

 

(3,334

)

708

 

Deferred revenue

 

(7,602

)

(39,259

)

Proceeds from landlord for tenant improvements

 

 

1,267

 

Net cash used for operating activities

 

(65,490

)

(34,383

)

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchases of property and equipment

 

(5,127

)

(2,590

)

Net cash used for investing activities

 

(5,127

)

(2,590

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Proceeds from stock options exercised

 

4,791

 

1,316

 

Net cash provided by financing activities

 

4,791

 

1,316

 

 

 

 

 

 

 

Net change in cash and cash equivalents

 

(65,826

)

(35,657

)

 

 

 

 

 

 

Cash and cash equivalents, beginning balance

 

278,109

 

142,261

 

 

 

 

 

 

 

Cash and cash equivalents, ending balance

 

$

212,283

 

$

106,604

 

 

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

 

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IMMUNOGEN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2015

 

A.                                    Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements at December 31, 2015 and June 30, 2015 and for the three and six months ended December 30, 2015 and 2014 include the accounts of ImmunoGen, Inc., or the Company, and its wholly owned subsidiaries, ImmunoGen Securities Corp., ImmunoGen Europe Limited and Hurricane, LLC. The consolidated financial statements include all of the adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair presentation of the Company’s financial position in accordance with accounting principles generally accepted in the U.S. for interim financial information. The June 30, 2015 condensed consolidated balance sheet data presented for comparative purposes was derived from our audited financial statements but certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. The preparation of interim financial statements requires the use of management’s estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim financial statements and the reported amounts of revenues and expenditures during the reported periods. The results of the interim periods are not necessarily indicative of the results for the entire year. Accordingly, the interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2015.

 

Subsequent Events

 

The Company has evaluated all events or transactions that occurred after December 31, 2015 up through the date the Company issued these financial statements. In January 2016, Bayer initiated a Phase II clinical study designed to support registration of its ADC product candidate, anetumab ravtansine, triggering a $10 million development milestone payment to the Company. The Company did not have any other material recognizable or unrecognizable subsequent events during this period.

 

Revenue Recognition

 

The Company enters into licensing and development agreements with collaborative partners for the development of monoclonal antibody-based anticancer therapeutics. The terms of these agreements contain multiple deliverables which may include (i) licenses, or options to obtain licenses, to the Company’s antibody-drug conjugate, or ADC, technology, (ii) rights to future technological improvements, (iii) research activities to be performed on behalf of the collaborative partner, (iv) delivery of cytotoxic agents and (v) the manufacture of preclinical or clinical materials for the collaborative partner. Payments to the Company under these agreements may include upfront fees, option fees, exercise fees, payments for research activities, payments for the manufacture of preclinical or clinical materials, payments based upon the achievement of certain milestones and royalties on product sales. The Company follows the provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 605-25, “Revenue Recognition—Multiple-Element Arrangements,” and ASC Topic 605-28, “Revenue Recognition-Milestone Method,” in accounting for these agreements. In order to account for these agreements, the Company must identify the deliverables included within the agreement and evaluate which deliverables represent separate units of accounting based on if certain criteria are met, including whether the delivered element has stand-alone value to the collaborator. The consideration received is allocated among the separate units of accounting, and the applicable revenue recognition criteria are applied to each of the separate units.

 

At December 31, 2015, the Company had the following two types of agreements with the parties identified below:

 

·                  Development and commercialization licenses, which provide the party with the right to use the Company’s ADC technology and/or certain other intellectual property to develop compounds to a specified antigen target:

 

Amgen (four exclusive single-target licenses(1))

 

Bayer (one exclusive single-target license)

 

Biotest (one exclusive single-target license)

 

Lilly (three exclusive single-target licenses)

 

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(1) Amgen has sublicensed one of its exclusive single-target licenses to Oxford BioTherapeutics Ltd.

 

Novartis (five exclusive single-target licenses and one license to two related targets: one target on an exclusive basis and the second target on a non-exclusive basis)

 

Roche, through its Genentech unit (five exclusive single-target licenses)

 

Sanofi (one exclusive single-target license and one exclusive license to multiple individual targets)

 

Takeda, through its wholly owned subsidiary, Millennium Pharmaceuticals, Inc. (one exclusive single-target license)

 

·                  Research license/option agreement for a defined period of time to secure development and commercialization licenses to use the Company’s ADC technology to develop anticancer compounds to specified targets on established terms (referred to herein as right-to-test agreements):

 

Sanofi

 

CytomX

 

Takeda

 

There are no performance, cancellation, termination or refund provisions in any of the arrangements that contain material financial consequences to the Company.

 

Development and Commercialization Licenses

 

The deliverables under a development and commercialization license agreement generally include the license to the Company’s ADC technology with respect to a specified antigen target, and may also include deliverables related to rights to future technological improvements, research activities to be performed on behalf of the collaborative partner and the manufacture of preclinical or clinical materials for the collaborative partner.

 

Generally, development and commercialization licenses contain non-refundable terms for payments and, depending on the terms of the agreement, provide that the Company will (i) at the collaborator’s request, provide research services at negotiated prices which are generally consistent with what other third parties would charge, (ii) at the collaborator’s request, manufacture and provide to it preclinical and clinical materials or deliver cytotoxic agents at negotiated prices which are generally consistent with what other third parties would charge, (iii) earn payments upon the achievement of certain milestones and (iv) earn royalty payments, generally until the later of the last applicable patent expiration or 10 to 12 years after product launch. In the case of Kadcyla, however, the minimum royalty term is 10 years and the maximum royalty term is 12 years on a country by country basis, regardless of patent protection.  Royalty rates may vary over the royalty term depending on the Company’s intellectual property rights and/or the presence of comparable competing products. The Company may provide technical assistance and share any technology improvements with its collaborators during the term of the collaboration agreements. The Company does not directly control when or whether any collaborator will request research or manufacturing services, achieve milestones or become liable for royalty payments. As a result, the Company cannot predict when or if it will recognize revenues in connection with any of the foregoing.

 

In determining the units of accounting, management evaluates whether the license has stand-alone value from the undelivered elements to the collaborative partner based on the consideration of the relevant facts and circumstances for each arrangement. Factors considered in this determination include the research capabilities of the partner and the availability of ADC technology research expertise in the general marketplace. If the Company concludes that the license has stand-alone value and therefore will be accounted for as a separate unit of accounting, the Company then determines the estimated selling prices of the license and all other units of accounting based on market conditions, similar arrangements entered into by third parties, and entity-specific factors such as the terms of the Company’s previous collaborative agreements, recent preclinical and clinical testing results of therapeutic products that use the Company’s ADC technology, the Company’s pricing practices and pricing objectives, the likelihood that technological improvements will be made, and, if made, will be used by the Company’s collaborators and the nature of the research services to be performed on behalf of its collaborators and market rates for similar services.

 

Upfront payments on development and commercialization licenses are deferred if facts and circumstances dictate that the license does not have stand-alone value. Prior to the adoption of Accounting Standards Update (ASU) No. 2009-13, “Revenue Arrangements with Multiple Deliverables” on July 1, 2010, the Company determined that its licenses lacked stand-alone value and were combined with other elements of the arrangement and any amounts associated with the license were deferred and amortized over

 

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a certain period, which the Company refers to as the Company’s period of substantial involvement. The determination of the length of the period over which to defer revenue is subject to judgment and estimation and can have an impact on the amount of revenue recognized in a given period. Historically the Company’s involvement with the development of a collaborator’s product candidate has been significant at the early stages of development, and lessens as it progresses into clinical trials. Also, as a drug candidate gets closer to commencing pivotal testing the Company’s collaborators have sought an alternative site to manufacture their products, as the Company’s facility does not produce pivotal or commercial drug product. Accordingly, the Company generally estimates this period of substantial involvement to begin at the inception of the collaboration agreement and conclude at the end of non-pivotal Phase II testing. The Company believes this period of substantial involvement is, depending on the nature of the license, on average six and one-half years. Quarterly, the Company reassesses its periods of substantial involvement over which the Company amortizes its upfront license fees and makes adjustments as appropriate. In the event a collaborator elects to discontinue development of a specific product candidate under a development and commercialization license, but retains its right to use the Company’s technology to develop an alternative product candidate to the same target or a target substitute, the Company would cease amortization of any remaining portion of the upfront fee until there is substantial preclinical activity on another product candidate and its remaining period of substantial involvement can be estimated. In the event that a development and commercialization license were to be terminated, the Company would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue, but was classified as deferred revenue, at the date of such termination.

 

Subsequent to the adoption of ASU No. 2009-13, the Company determined that its research licenses lack stand-alone value and are considered for aggregation with the other elements of the arrangement and accounted for as one unit of accounting.

 

Upfront payments on development and commercialization licenses may be recognized upon delivery of the license if facts and circumstances dictate that the license has stand-alone value from the undelivered elements, which generally include rights to future technological improvements, research services, delivery of cytotoxic agents and the manufacture of preclinical and clinical materials.

 

The Company recognizes revenue related to research services that represent separate units of accounting as they are performed, as long as there is persuasive evidence of an arrangement, the fee is fixed or determinable, and collection of the related receivable is probable. The Company recognizes revenue related to the rights to future technological improvements over the estimated term of the applicable license.

 

The Company may also provide cytotoxic agents to its collaborators or produce preclinical and clinical materials at negotiated prices which are generally consistent with what other third parties would charge. The Company recognizes revenue on cytotoxic agents and on preclinical and clinical materials when the materials have passed all quality testing required for collaborator acceptance and title and risk of loss have transferred to the collaborator. Arrangement consideration allocated to the manufacture of preclinical and clinical materials in a multiple-deliverable arrangement is below the Company’s full cost, and the Company’s full cost is not expected to ever be below its contract selling prices for its existing collaborations. During each of the six months ended December 31, 2015 and 2014, the difference between the Company’s full cost to manufacture preclinical and clinical materials on behalf of its collaborators as compared to total amounts received from collaborators for the manufacture of preclinical and clinical materials was $5.5 million. The majority of the Company’s costs to produce these preclinical and clinical materials are fixed and then allocated to each batch based on the number of batches produced during the period. Therefore, the Company’s costs to produce these materials are significantly impacted by the number of batches produced during the period. The volume of preclinical and clinical materials the Company produces is directly related to the number of clinical trials the Company and its collaborators are preparing for or currently have underway, the speed of enrollment in those trials, the dosage schedule of each clinical trial and the time period such trials last. Accordingly, the volume of preclinical and clinical materials produced, and therefore the Company’s per-batch costs to manufacture these preclinical and clinical materials, may vary significantly from period to period.

 

The Company may also produce research material for potential collaborators under material transfer agreements. Additionally, the Company performs research activities, including developing antibody specific conjugation processes, on behalf of its collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development. The Company records amounts received for research materials produced or services performed as a component of research and development support revenue. The Company also develops conjugation processes for materials for later-stage testing and commercialization for certain collaborators. The Company is compensated at negotiated rates and may receive milestone payments for developing these processes which are recorded as a component of research and development support revenue.

 

The Company’s development and commercialization license agreements have milestone payments which for reporting purposes are aggregated into three categories: (i) development milestones, (ii) regulatory milestones, and (iii) sales milestones. Development milestones are typically payable when a product candidate initiates or advances into different clinical trial phases. Regulatory milestones are typically payable upon submission for marketing approval with the U.S. Food and Drug Administration, or

 

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FDA, or other countries’ regulatory authorities or on receipt of actual marketing approvals for the compound or for additional indications. Sales milestones are typically payable when annual sales reach certain levels.

 

At the inception of each agreement that includes milestone payments, the Company evaluates whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone. This evaluation includes an assessment of whether (a) the consideration is commensurate with either (1) the entity’s performance to achieve the milestone, or (2) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity’s performance to achieve the milestone, (b) the consideration relates solely to past performance and (c) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. The Company evaluates factors such as the scientific, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required to achieve the respective milestone and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment.

 

Non-refundable development and regulatory milestones that are expected to be achieved as a result of the Company’s efforts during the period of substantial involvement are considered substantive and are recognized as revenue upon the achievement of the milestone, assuming all other revenue recognition criteria are met. Milestones that are not considered substantive because the Company does not contribute effort to the achievement of such milestones are generally achieved after the period of substantial involvement and are recognized as revenue upon achievement of the milestone, as there are no undelivered elements remaining and no continuing performance obligations, assuming all other revenue recognition criteria are met.

 

Under the Company’s development and commercialization license agreements, the Company receives royalty payments based upon its licensees’ net sales of covered products. Generally, under these agreements the Company is to receive royalty reports and payments from its licensees approximately one quarter in arrears, that is, generally in the third month of the quarter after the licensee has sold the royalty-bearing product or products. The Company recognizes royalty revenues when it can reliably estimate such amounts and collectability is reasonably assured. As such, the Company generally recognizes royalty revenues in the quarter reported to the Company by its licensees, or one quarter following the quarter in which sales by the Company’s licensees occurred.

 

Right-to-Test Agreements

 

The Company’s right-to-test agreements provide collaborators the right to (a) test the Company’s ADC technology for a defined period of time through a research, or right-to-test, license, (b) take options, for a defined period of time, to specified targets and (c) upon exercise of those options, secure or “take” licenses to develop and commercialize products for the specified targets on established terms. Under these agreements, fees may be due to the Company (i) at the inception of the arrangement (referred to as “upfront” fees or payments), (ii) upon taking an option with respect to a specific target (referred to as option fees or payments earned, if any, when the option is “taken”), (iii) upon the exercise of a previously taken option to acquire a development and commercialization license(s) (referred to as exercise fees or payments earned, if any, when the development and commercialization license is “taken”), or (iv) some combination of all of these fees.

 

The accounting for right-to-test agreements is dependent on the nature of the options granted to the collaborative partner. Options are considered substantive if, at the inception of a right-to-test agreement, the Company is at risk as to whether the collaborative partner will choose to exercise the options to secure development and commercialization licenses. Factors that are considered in evaluating whether options are substantive include the overall objective of the arrangement, the benefit the collaborator might obtain from the agreement without exercising the options, the cost to exercise the options relative to the total upfront consideration, and the additional financial commitments or economic penalties imposed on the collaborator as a result of exercising the options.

 

For right-to-test agreements where the options to secure development and commercialization licenses to the Company’s ADC technology are considered substantive, the Company does not consider the development and commercialization licenses to be a deliverable at the inception of the agreement. For those right-to-test agreements entered into prior to the adoption of ASU No. 2009-13 where the options to secure development and commercialization licenses are considered substantive, the Company has deferred the upfront payments received and recognizes this revenue over the period during which the collaborator could elect to take options for development and commercialization licenses. These periods are specific to each collaboration agreement. If a collaborator takes an option to acquire a development and commercialization license under these agreements, any substantive option fee is deferred and recognized over the life of the option, generally 12 to 18 months. If a collaborator exercises an option and takes a development and commercialization license to a specific target, the Company attributes the exercise fee to the development and commercialization license. Upon exercise of an option to acquire a development and commercialization license, the Company would also attribute any remaining deferred option fee to the development and commercialization license and apply the multiple-element revenue recognition criteria to the development and commercialization license and any other deliverables to determine the appropriate revenue recognition, which will be consistent with the Company’s accounting policy for upfront payments on single-target licenses. In the event a

 

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right-to-test agreement were to be terminated, the Company would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue, but was classified as deferred revenue, at the date of such termination. None of the Company’s right-to-test agreements entered into subsequent to the adoption of ASU No. 2009-13 has been determined to contain substantive options.

 

For right-to-test agreements where the options to secure development and commercialization licenses to the Company’s ADC technology are not considered substantive, the Company considers the development and commercialization licenses to be a deliverable at the inception of the agreement and applies the multiple-element revenue recognition criteria to determine the appropriate revenue recognition. None of the Company’s right-to-test agreements entered into prior to the adoption of ASU No. 2009-13 has been determined to contain non-substantive options.

 

The Company does not directly control when or if any collaborator will exercise its options for development and commercialization licenses. As a result, the Company cannot predict when or if it will recognize revenues in connection with any of the foregoing.

 

Financial Instruments and Concentration of Credit Risk

 

Cash and cash equivalents are primarily maintained with three financial institutions in the U.S. Deposits with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk. The Company’s cash equivalents consist of money market funds with underlying investments primarily being U.S. Government issued securities and high quality, short term commercial paper. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and marketable securities. The Company held no marketable securities as of December 31, 2015 and June 30, 2015. The Company’s investment policy, approved by the Board of Directors, limits the amount it may invest in any one type of investment, thereby reducing credit risk concentrations.

 

Cash and Cash Equivalents

 

All highly liquid financial instruments with maturities of three months or less when purchased are considered cash equivalents. As of December 31, 2015 and June 30, 2015, the Company held $212.3 million and $278.1 million, respectively, in cash and money market funds consisting principally of U.S. Government-issued securities and high quality, short-term commercial paper which were classified as cash and cash equivalents.

 

Non-cash Investing Activities

 

The Company had $2.5 million of accrued capital expenditures as of December 31, 2015 which have been treated as a non-cash investing activity and, accordingly, are not reflected in the consolidated statement of cash flows.  Accrued capital expenditures as of December 31, 2014 were not material and are included in the consolidated statement of cash flows.

 

Fair Value of Financial Instruments

 

Fair value is defined under ASC Topic 820, “Fair Value Measurements and Disclosures,” as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.  The standard describes a fair value hierarchy to measure fair value which is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

 

·                           Level 1 - Quoted prices in active markets for identical assets or liabilities.

 

·                           Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

·                           Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

As of December 31, 2015, the Company held certain assets that are required to be measured at fair value on a recurring basis.  The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of December 31, 2015 (in thousands):

 

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Fair Value Measurements at December 31, 2015 Using

 

 

 

 

 

Quoted Prices in
Active Markets for
Identical Assets

 

Significant Other
Observable Inputs

 

Significant
Unobservable
Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Cash equivalents

 

$

193,209

 

$

193,209

 

$

 

$

 

 

As of June 30, 2015, the Company held certain assets that are required to be measured at fair value on a recurring basis. The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of June 30, 2015 (in thousands):

 

 

 

Fair Value Measurements at June 30, 2015 Using

 

 

 

 

 

Quoted Prices in
Active Markets for
Identical Assets

 

Significant Other
Observable Inputs

 

Significant
Unobservable
Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Cash equivalents

 

$

269,304

 

$

269,304

 

$

 

$

 

 

The fair value of the Company’s cash equivalents is based on quoted prices from active markets.

 

Unbilled Revenue

 

The majority of the Company’s unbilled revenue at December 31, 2015 and June 30, 2015 represents research funding earned prior to those dates based on actual resources utilized under the Company’s agreements with various collaborators.

 

Inventory

 

Inventory costs relate to clinical trial materials being manufactured for sale to the Company’s collaborators. Inventory is stated at the lower of cost or market as determined on a first-in, first-out (FIFO) basis.

 

Inventory at December 31, 2015 and June 30, 2015 is summarized below (in thousands):

 

 

 

December 31,
2015

 

June 30,
2015

 

 

 

 

 

 

 

Raw materials

 

$

367

 

$

279

 

Work in process

 

1,170

 

2,656

 

 

 

 

 

 

 

Total

 

$

1,537

 

$

2,935

 

 

Raw materials inventory consists entirely of DM1 and DM4, proprietary cell-killing agents the Company developed as part of its ADC technology. The Company considers more than a twelve month supply of raw materials that is not supported by firm, fixed orders and/or projections from its collaborators to be excess and establishes a reserve to reduce to zero the value of any such excess raw material inventory with a corresponding charge to research and development expense. In accordance with this policy, the Company recorded $966,000 of expense related to excess inventory during the three and six-months ended December 31, 2015 compared to $55,000 and $392,000 of expense related to excess inventory  recorded during the three and six month periods ended December 31, 2014, respectively.

 

Work in process inventory consists of conjugate manufactured for sale to the Company’s collaborators to be used in preclinical and clinical studies.  All conjugate is made to order at the request of the collaborators and subject to the terms and conditions of respective supply agreements.  As such, no reserve for work in process inventory is required.

 

Computation of Net Loss per Common Share

 

Basic and diluted net loss per share is calculated based upon the weighted average number of common shares outstanding during the period. During periods of income, participating securities are allocated a proportional share of income determined by dividing total weighted average participating securities by the sum of the total weighted average common shares and participating securities (the “two-class method”). Shares of the Company’s restricted stock participate in any dividends declared by the Company and are therefore considered to be participating securities. Participating securities have the effect of diluting both basic and diluted earnings per share during periods of income. During periods of loss, no loss is allocated to participating securities since they have no

 

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contractual obligation to share in the losses of the Company. The impact of applying the two-class method was not material. Diluted (loss) income per share is computed after giving consideration to the dilutive effect of stock options and restricted stock that are outstanding during the period, except where such non-participating securities would be anti-dilutive.

 

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

Options outstanding to purchase common stock and unvested restricted stock

 

11,668

 

10,241

 

11,668

 

10,241

 

 

 

 

 

 

 

 

 

 

 

Common stock equivalents under treasury stock method

 

990

 

730

 

1,139

 

969

 

 

Potentially dilutive securities representing 7.9 and 7.1 million shares of common stock for the three and six-month periods ended December 31, 2014, respectively, were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive. The Company’s common stock equivalents have not been included in any net loss per share calculation because their effect is anti-dilutive due to the Company’s net loss position.

 

Stock-Based Compensation

 

As of December 31, 2015, the Company is authorized to grant future awards under one employee share-based compensation plan, which is the ImmunoGen, Inc. 2006 Employee, Director and Consultant Equity Incentive Plan, or the 2006 Plan. At the annual meeting of shareholders on November 11, 2014, an amendment to the 2006 Plan was approved and an additional 5,500,000 shares were authorized for issuance under this plan.  As amended, the 2006 Plan provides for the issuance of Stock Grants, the grant of Options and the grant of Stock-Based Awards for up to 17,500,000 shares of the Company’s common stock, as well as 1,676,599 shares of common stock which represent awards granted under the previous stock option plan, the ImmunoGen, Inc. Restated Stock Option Plan, or the Former Plan, that were forfeited, expired or were cancelled without delivery of shares of common stock or which resulted in the forfeiture of shares of common stock back to the Company between November 11, 2006 and June 30, 2014. Option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Options vest at various periods of up to four years and may be exercised within ten years of the date of grant.

 

The stock-based awards are accounted for under ASC Topic 718, “Compensation—Stock Compensation.” Pursuant to Topic 718, the estimated grant date fair value of awards is charged to the statement of operations and comprehensive loss over the requisite service period, which is the vesting period. Such amounts have been reduced by an estimate of forfeitures of all unvested awards. The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the assumptions noted in the following table. As the Company has not paid dividends since inception, nor does it expect to pay any dividends for the foreseeable future, the expected dividend yield assumption is zero. Expected volatility is based exclusively on historical volatility data of the Company’s stock. The expected term of stock options granted is based exclusively on historical data and represents the period of time that stock options granted are expected to be outstanding. The expected term is calculated for and applied to one group of stock options as the Company does not expect substantially different exercise or post-vesting termination behavior among its option recipients. The risk-free rate of the stock options is based on the U.S. Treasury rate in effect at the time of grant for the expected term of the stock options.

 

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

Dividend

 

None

 

None

 

None

 

None

 

Volatility

 

65.20%

 

60.95%

 

66.86%

 

60.87%

 

Risk-free interest rate

 

1.67%

 

1.81%

 

1.86%

 

1.88%

 

Expected life (years)

 

6.3

 

6.3

 

6.3

 

6.3

 

 

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Using the Black-Scholes option-pricing model, the weighted average grant date fair values of options granted during the three months ended December 31, 2015 and 2014 were $7.49 and $5.77 per share, respectively, and $9.99 and $6.24 per share for options granted during the six months ended December 31, 2015 and 2014, respectively.

 

Stock compensation expense related to stock options and restricted stock awards granted under the 2006 Plan was $4.5 million and $10.2 million during the three and six months ended December 31, 2015, respectively, compared to stock compensation expense of $3.6 million and $8.9 million for the three and six months ended December 31, 2014, respectively. As of December 31, 2015, the estimated fair value of unvested employee awards was $32.8 million, net of estimated forfeitures. The weighted-average remaining vesting period for these awards is approximately two years.

 

During the six months ended December 31, 2015, holders of options issued under the Company’s equity plans exercised their rights to acquire an aggregate of approximately 461,000 shares of common stock at prices ranging from $3.19 to $17.00 per share.  The total proceeds to the Company from these option exercises were approximately $4.8 million.

 

Segment Information

 

During the six months ended December 31, 2015, the Company continued to operate in one operating segment which is the business of discovery of monoclonal antibody-based anticancer therapeutics.

 

The percentages of revenues recognized from significant customers of the Company in the three and six months ended December 31, 2015 and 2014 are included in the following table:

 

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

Collaborative Partner:

 

2015

 

2014

 

2015

 

2014

 

Lilly

 

1%

 

35%

 

16%

 

28%

 

Novartis

 

1%

 

54%

 

1%

 

44%

 

Roche

 

36%

 

10%

 

37%

 

14%

 

Sanofi

 

11%

 

—%

 

6%

 

10%

 

Takeda

 

49%

 

—%

 

28%

 

—%

 

 

There were no other customers of the Company with significant revenues in the three and six months ended December 31, 2015 and 2014.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued Accounting Standards Update 2014-9, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), to clarify the principles for recognizing revenue. This update provides a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The original effective date would have required the Company to adopt beginning in its first quarter of fiscal 2018. In July 2015, the FASB voted to amend ASU 2014-09 by approving a one-year deferral of the effective date as well as providing the option to early adopt the standard on the original effective date.  Accordingly, the Company may adopt the standard in either its first quarter of fiscal 2018 or 2019. The new revenue standard allows for either full retrospective or modified retrospective application. The Company is currently evaluating the timing of its adoption, the transition method to apply and the impact that this guidance will have on its consolidated financial statements and related disclosures.

 

In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This new standard gives a company’s management the final responsibilities to decide whether there’s substantial doubt about the company’s ability to continue as a going concern and to provide related footnote disclosures. The standard provides guidance to management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that companies commonly provide in their footnotes. Under the new standard, management must decide whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the company’s ability to continue as a going concern within one year after the date that the financial statements are issued, or within one year after the date that the financial statements are available to be issued when applicable. This guidance is effective for annual reporting beginning after December 15, 2016, including interim periods within the year of adoption, with early application permitted. Accordingly, the standard is effective for the Company on July 1, 2017. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

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In April 2015, the FASB issued Accounting Standards Update 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. To simplify presentation of debt issuance costs, this new standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  The recognition and measurement guidance for debt issuance costs are not affected by this update.  This guidance is effective for annual reporting beginning after December 15, 2015, including interim periods within the year of adoption, and calls for retrospective application, with early application permitted. Accordingly, the standard is effective for the Company on July 1, 2016. The Company’s consolidated balance sheet as of December 31, 2015 includes in assets $5 million of debt issuance costs classified as deferred financing costs.

 

In July 2015, the FASB issued Accounting Standards Update 2015-11, Simplifying the Measurement of Inventory (Topic 330). To simplify the principles for subsequent measurement of inventory, this new standard requires inventory measured using any method other than LIFO or the retail method shall be measured at the lower of cost and net realizable value, rather than lower of cost or market. This guidance is effective for annual reporting beginning after December 15, 2016, including interim periods within the year of adoption, and calls for prospective application, with early application permitted. Accordingly, the standard is effective for the Company on July 1, 2017. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

In November 2015, the FASB issued Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740). To simplify the presentation of deferred income taxes, the amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position.  This guidance is effective for annual reporting beginning after December 15, 2016, including interim periods within the year of adoption, with early application permitted. The Company implemented the recommendations of this Update prospectively, resulting in a reduction of long-term assets and current liabilities of approximately $843,000 as of December 31, 2015. The prior period balances were not retrospectively adjusted.

 

In January 2016, the FASB issued Accounting Standards Update 2016-1, Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825).  The amendments in this Update supersede the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and require equity securities (including other ownership interests, such as partnerships, unincorporated joint ventures, and limited liability companies) to be measured at fair value with changes in the fair value recognized through net income.  The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. The amendments also require enhanced disclosures about those investments. The amendments improve financial reporting by providing relevant information about an entity’s equity investments and reducing the number of items that are recognized in other comprehensive income.  This guidance is effective for annual reporting beginning after December 15, 2017, including interim periods within the year of adoption, and calls for prospective application, with early application permitted. Accordingly, the standard is effective for the Company on July 1, 2018. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

B.                                    Collaborative Agreements

 

Roche

 

In May 2000, the Company granted Genentech, now a unit of Roche, an exclusive license to use the Company’s maytansinoid ADC technology with antibodies, such as trastuzumab, or other proteins that target HER2. Pursuant to this agreement, Roche developed and received marketing approval for its HER2-targeting ADC compound, Kadcyla, in the U.S., Europe, Japan and numerous other countries. The Company receives royalty reports and payments related to sales of Kadcyla from Roche one quarter in arrears. In accordance with the Company’s revenue recognition policy, $12 million of non-cash royalties on net sales of Kadcyla for the six-month period ended September 30, 2015 were recorded and included in revenue for the six months ended December 31, 2015 and $8.8 million of royalties on net sales of Kadcyla for the six-month period ended September 30, 2014 were included in royalty revenue for the six months ended December 31, 2014. In April 2015, the Company consummated a royalty purchase transaction — see Note C below for further details. Included in the three and six months ended December 31, 2015 is $195,000 of cash royalties resulting from an adjustment recorded in the current period related to net sales of Kadcyla  prior to the effective date of the royalty purchase transaction.

 

Amgen

 

Under a now-expired right-to-test agreement, in September 2009, November 2009 and December 2012, Amgen took three exclusive development and commercialization licenses, for which the Company received an exercise fee of $1 million for each license taken. In May 2013, Amgen took one non-exclusive development and commercialization license, for which the Company received an exercise fee of $500,000. In October 2013, the non-exclusive license was amended and converted to an exclusive license, for which

 

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Amgen paid an additional $500,000 fee to the Company. Amgen has sublicensed its rights under this license to Oxford BioTherapeutics Ltd. In December 2015, Amgen advised the Company that it had discontinued development of two product candidates, AMG 595 and AMG 172 that had been covered by two of Amgen’s four exclusive licenses. For the two remaining development and commercialization licenses taken, the Company is entitled to receive up to a total of $34 million in milestone payments, plus royalties on the commercial sales of any resulting products. The total milestones per license are categorized as follows: development milestones—$9 million; regulatory milestones—$20 million; and sales milestones—$5 million. Amgen (or its sublicensee(s)) is responsible for the manufacturing, product development and marketing of any products resulting from these development and commercialization licenses.

 

In September 2015, the IND application for its third ADC product candidate became effective, triggering a $1 million milestone payment to the Company which is included in license and milestone fee revenue for the six months ended December 31, 2015. The next potential milestone the Company will be entitled to receive under this license will be a development milestone for the first dosing of a patient in a Phase II clinical trial, which will result in a $3 million payment being due. The next potential milestone the Company will be entitled to receive under the May 2013 license will be a $1 million development milestone for an IND becoming effective. At the time of execution of each of these development and commercialization licenses, there was significant uncertainty as to whether these milestones would be achieved. In consideration of this, as well as the Company’s past involvement in the research and manufacturing of these product candidates, these milestones were deemed substantive.

 

Sanofi

 

In July 2003, the Company entered into a broad collaboration agreement with Sanofi (formerly Aventis) to discover, develop and commercialize antibody-based products. The collaboration agreement provides Sanofi with worldwide development and commercialization rights to new antibody-based products directed to targets that are included in the collaboration, including the exclusive right to use the Company’s maytansinoid ADC technology in the creation of products developed to these targets. The product candidates (targets) as of December 31, 2015 in the collaboration include isatuximab (CD38), SAR566658 (CA6), SAR408701 (CEACAM5) and one earlier-stage compound that has yet to be disclosed.

 

We are entitled to receive milestone payments potentially totaling $21.5 million, per target, plus royalties on the commercial sales of any resulting products. The total milestones are categorized as follows: development milestones—$7.5 million; and regulatory milestones—$14 million. Through December 31, 2015, the Company has received and recognized an aggregate of $20.5 million in milestone payments for compounds covered under this agreement now or in the past, including a $3 million development milestone related to initiation of a Phase IIb clinical trial (as defined in the agreement) for isatuximab and a $1 million development milestone related to initiation of a Phase I clinical trial for SAR408701 which are included in license and milestone fee revenue for the six months ended December 31, 2014. The next potential milestone the Company will be entitled to receive for each of SAR566658 and SAR408701 will be a development milestone for initiation of a Phase IIb clinical trial (as defined in the agreement), which will result in each case in a $3 million payment being due. The next potential milestone the Company will be entitled to receive with respect to isatuximab will be a development milestone for initiation of a Phase III clinical trial, which will result in a $3 million payment being due. The next potential milestone the Company will be entitled to receive for the unidentified target will be a development milestone for commencement of a Phase I clinical trial, which will result in a $1 million payment being due. At the time of execution of this agreement, there was significant uncertainty as to whether these milestones would be achieved. In consideration of this, as well as the Company’s past involvement in the research and manufacturing of these product candidates, these milestones were deemed substantive.

 

In December 2006, we entered into a right-to-test agreement with Sanofi. The agreement provides Sanofi with the right to (a) test the Company’s maytansinoid ADC technology with Sanofi’s antibodies to targets under a right-to-test, or research, license, (b) take exclusive options, with certain restrictions, to specified targets for specified option periods and (c) upon exercise of those options, take exclusive licenses to use the Company’s maytansinoid ADC technology to develop and commercialize products directed to the specified targets on terms agreed upon at the inception of the right-to-test agreement. Sanofi no longer has the right to take additional options under the agreement, although multiple outstanding options remain in effect for the remainder of their respective option periods. For each development and commercialization license taken, the Company is entitled to receive an exercise fee of $2 million and up to a total of $30 million in milestone payments, plus royalties on the commercial sales of any resulting products. The total milestones are categorized as follows: development milestones—$10 million; and regulatory milestones—$20 million.

 

In December 2013, Sanofi took its first exclusive development and commercialization license under the right-to-test agreement, for which the Company received an exercise fee of $2 million and was recognizing this amount as revenue ratably over the Company’s estimated period of its substantial involvement. The Company had previously estimated this development period would conclude at the end of non-pivotal Phase II testing.  During the first quarter of fiscal 2014, the Company determined it will not be substantially involved in the development and commercialization of the product based on Sanofi’s current plans to develop and manufacture the product without the Company’s assistance. As a result of this determination, we recognized the balance of the upfront

 

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exercise fee during the prior period.  This change in estimate resulted in an increase to license and milestone fees of $1.7 million for the six months ended December 31, 2014 compared to amounts that would have been recognized pursuant to the Company’s previous estimate.

 

Pursuant to the license agreement noted above, in October 2015, Sanofi initiated Phase I, first-in-human clinical testing of its ADC product candidate, SAR428926 (LAMP1), triggering a $2 million development milestone payment to the Company which is included in license and milestone fee revenue for the three and six months ended December 31, 2015. The next milestone payment the Company could receive would be a $4 million development milestone for commencement of a Phase IIb clinical trial (as defined in the agreement) under this license. At the time of execution of this agreement, there was significant uncertainty as to whether these milestones would be achieved. In consideration of this, as well as the Company’s past involvement in the research and manufacturing of Sanofi’s product candidates, these milestones were deemed substantive.

 

Bayer

 

In October 2008, the Company granted Bayer an exclusive development and commercialization license to the Company’s ADC technology for use with antibodies or other proteins that target mesothelin. The Company received a $4 million upfront payment upon execution of the agreement, and—for each compound developed and marketed by Bayer under this collaboration—the Company is entitled to receive a total of $170.5 million in milestone payments, plus royalties on the commercial sales of any resulting products. The total milestones are categorized as follows: development milestones—$16 million; regulatory milestones—$44.5 million; and sales milestones—$110 million. Through December 31, 2015, the Company has received and recognized an aggregate of $3 million in milestone payments under this agreement. In January 2016, Bayer initiated a Phase II clinical study designed to support registration of its ADC product candidate, anetumab ravtansine, triggering a $10 million milestone payment being due to the Company. At the time of execution of this agreement, there was significant uncertainty as to whether these received and recognized milestones would be achieved. In consideration of this, as well as the Company’s past involvement in the research and supply of cytotoxic agent for this product candidate, these milestones were deemed substantive. The next potential milestone the Company will be entitled to receive will be either a $2 million development milestone for commencement of a pivotal clinical trial for a second indication for anetumab ravtansine or a $6 million regulatory milestone for filing of regulatory approval for its first indication for anetumab ravtansine. At the time of execution of this agreement, there was significant uncertainty as to whether these milestones would be achieved. In consideration of this, as well as the Company’s past involvement in the research and supply of cytotoxic agent for this product candidate, these milestones were deemed substantive.

 

Lilly

 

Eli Lilly and Company (Lilly) had the right to take three exclusive development and commercialization licenses under a right-to-test agreement established in December 2011, and took these licenses prior to the expiration of the agreement in December 2014. The Company received a $20 million upfront payment in connection with the execution of the right-to-test agreement in 2011.  Under the terms of this right-to-test agreement, the first license had no associated exercise fee, and the second and third licenses each had a $2 million exercise fee. The first development and commercialization license was taken in August 2013 and the agreement was amended in December 2013 to provide Lilly with an extension provision and retrospectively include a $2 million exercise fee for the first license in lieu of the fee due for either the second or third license. The second and third licenses were taken in December 2014, with one including the $2 million exercise fee and the other not. Upon execution of the two licenses in December 2014, the Company recognized the remaining $15.6 million of the $23.5 million of arrangement consideration allocated to the development and commercialization licenses, which is included in license and milestone fee revenue for the three and six months ended December 31, 2014. Under the two licenses with the $2 million exercise fee, the Company is entitled to receive up to a total of $199 million in milestone payments, plus royalties on the commercial sales of any resulting products.  Under the license taken in December 2014 without the exercise fee, the Company is entitled to receive up to a total of $200.5 million in milestone payments, plus royalties on the commercial sales of any resulting products. The total milestones are categorized as follows: development milestones—$29 million for the two development and commercialization licenses with the $2 million exercise fee, and $30.5 million for the one development and commercialization license with no exercise fee; regulatory milestones—$70 million in all cases; and sales milestones—$100 million in all cases.

 

In September 2015, Lilly initiated Phase I, first-in-human clinical testing of its ADC product candidate, LY3076226, triggering a $5 million milestone payment to the Company which is included in license and milestone fee revenue for the six months ended December 31, 2015.  The next payment the Company could receive would be either a $9 million milestone for commencement of a Phase II clinical trial under this license or a $5 million development milestone payment with the commencement of a Phase I clinical trial under either of its other two licenses.  At the time of execution of this agreement, there was significant uncertainty as to whether these milestones would be achieved. In consideration of this, as well as the Company’s expected involvement in the research and manufacturing of these product candidates, these milestones were deemed substantive. The Company also is entitled to receive

 

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payments for delivery of cytotoxic agents to Lilly and research and development activities performed on behalf of Lilly. Lilly is responsible for the manufacturing, product development and marketing of any products resulting from this collaboration.

 

Takeda

 

In March 2015, the Company entered into a right-to-test agreement with Takeda Pharmaceutical Company Limited (Takeda) through its wholly owned subsidiary, Millennium Pharmaceuticals, Inc.  The agreement provides Takeda with the right to (a) take exclusive options, with certain restrictions, to individual targets selected by Takeda for specified option periods, (b) test the Company’s ADC technology with Takeda’s antibodies directed to the targets optioned under a right-to-test, or research, license, and (c)  take exclusive licenses to use the Company’s ADC technology to develop and commercialize products to targets optioned for up to two individual targets on terms specified in the right-to-test agreement.  The Company received a $20 million upfront payment in connection with the execution of the right-to-test agreement. Takeda must exercise its options for the development and commercialization licenses by the end of the three-year term of the right-to-test agreement, after which any then outstanding options will lapse.  Takeda has the right to extend the three-year right-to-test period for one additional year by payment to the Company of $4 million.  Alternatively, Takeda has the right to expand the scope of the right-to-test agreement by payment to the Company of $8 million.  If Takeda opts to expand the scope of the right-to-test agreement, it will be entitled to take additional exclusive options, one of which may be exercised for an additional development and commercialization license, and the right-to test period will be extended until the fifth anniversary of the effective date of the right-to-test agreement. The first exclusive license was taken by Takeda in December 2015, and as a result, the Company recognized $8.6 million of the $25.9 million of arrangement consideration allocated to the development and commercialization licenses, which is included in license and milestone fee revenue for the three and six months ended December 31, 2015. Takeda is responsible for the manufacturing, product development and marketing of any products resulting from this collaboration.

 

For each development and commercialization license taken, the Company is entitled to receive up to a total of $210 million in milestone payments, plus royalties on the commercial sales of any resulting products. The total milestones are categorized as follows: development milestones—$30 million; regulatory milestones—$85 million; and sales milestones—$95 million. The first potential milestone the Company will be entitled to receive will be a $5 million development milestone payment with the initiation of a Phase I clinical trial under the first development and commercialization license taken. At the time of execution of this agreement, there was significant uncertainty as to whether the milestone related to initiation of a Phase I clinical trial under the first development and commercialization license would be achieved. In consideration of this, as well as the Company’s expected involvement in the research and manufacturing of these product candidates, this milestone was deemed substantive. The Company also is entitled to receive payments for delivery of cytotoxic agents to Takeda and research and development activities performed on behalf of Takeda.

 

For additional information related to these agreements, as well as the Company’s other significant collaborative agreements, please read Note C, Agreements to our consolidated financial statements included within the Company’s 2015 Form 10-K.

 

C.    Liability Related to Sale of Future Royalties

 

In April 2015, Immunity Royalty Holdings, L.P. (IRH) purchased the right to receive 100% of the royalty payments on commercial sales of Kadcyla subsequent to December 31, 2014, arising under the Company’s development and commercialization license with Genentech, until IRH has received aggregate royalties equal to $235 million or $260 million, depending on when the aggregate royalties received by IRH reach a specified milestone.  Once the applicable threshold is met, if ever, the Company will thereafter receive 85% and IRH will receive 15% of the Kadcyla royalties for the remaining royalty term.  At consummation of the transaction in April 2015, the Company received cash proceeds of $200 million.  As part of this sale, the Company incurred $5.9 million of transaction costs, which are presented in the accompanying consolidated balance sheet as deferred financing costs and will be amortized to interest expense over the estimated life of the royalty purchase agreement.  Although the Company sold its rights to receive royalties from the sales of Kadcyla, as a result of its ongoing involvement in the cash flows related to these royalties, the Company will continue to account for these royalties as revenue and recorded the $200 million in proceeds from this transaction as a liability related to sale of future royalties (Royalty Obligation) that will be amortized using the interest method over the estimated life of the royalty purchase agreement.

 

The following table shows the activity within the liability account during the six-month period ended December 31, 2015 (in thousands):

 

 

 

Period from
June 30, 2015 to
December 31,
2015

 

Liability related to sale of future royalties — beginning balance

 

$

199,662

 

Non-cash Kadcyla royalty revenue

 

(11,975

)

Non-cash interest expense recognized

 

9,621

 

 

 

 

 

Liability related to sale of future royalties — ending balance

 

$

197,308

 

 

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As royalties are remitted to IRH, the balance of the Royalty Obligation will be effectively repaid over the life of the agreement.  In order to determine the amortization of the Royalty Obligation, the Company is required to estimate the total amount of future royalty payments to be received and remitted to IRH as noted above over the life of the agreement. The sum of these amounts less the $200 million proceeds the Company received will be recorded as interest expense over the life of the Royalty Obligation. Since inception, the Company’s estimate of this total interest expense resulted in an effective annual interest rate of 9.7%. The Company periodically assesses the estimated royalty payments to IRH and to the extent such payments are greater or less than its initial estimates, or the timing of such payments is materially different than its original estimates, the Company will prospectively adjust the amortization of the Royalty Obligation. There are a number of factors that could materially affect the amount and timing of royalty payments from Genentech, most of which are not within the Company’s control. Such factors include, but are not limited to, changing standards of care, the introduction of competing products, manufacturing or other delays, biosimilar competition, patent protection, adverse events that result in governmental health authority imposed restrictions on the use of the drug products, significant changes in foreign exchange rates as the royalties remitted to IRH are made in U.S. dollars (USD) while significant portions of the underlying sales of Kadcyla are made in currencies other than USD, and other events or circumstances that could result in reduced royalty payments from Kadcyla, all of which would result in a reduction of non-cash royalty revenues and the non-cash interest expense over the life of the Royalty Obligation. Conversely, if sales of Kadcyla are more than expected, the non-cash royalty revenues and the non-cash interest expense recorded by the Company would be greater over the term of the Royalty Obligation.

 

In addition, the royalty purchase agreement grants IRH the right to receive certain reports and other information relating to the royalties and contains other representations and warranties, covenants and indemnification obligations that are customary for a transaction of this nature.

 

D.    Capital Stock

 

2001 Non-Employee Director Stock Plan

 

During the three and six months ended December 31, 2015, the Company recorded approximately $25,000 of expense and $(5,000) in expense reduction related to stock units outstanding under the Company’s 2001 Non-Employee Director Stock Plan, or the 2001 Plan, compared to $(29,000) and $(37,000) in expense reduction recorded during the three and six months ended December 31, 2014. The value of the stock units are classified as a liability and adjusted to market value at each reporting period as the redemption amount of stock units for this plan will be paid in cash.  No stock units have been issued under the 2001 Plan subsequent to June 30, 2004.

 

Compensation Policy for Non-Employee Directors

 

On November 12, 2013, the Board amended the Compensation Policy for Non-Employee Directors to make certain changes to the compensation of its non-employee directors, including an increase in the fees paid in cash to the non-employee directors. Under the terms of the amended policy, the redemption amount of deferred share units issued will continue to be paid in shares of common stock of the Company on the date a director ceases to be a member of the Board. Annual retainers vest quarterly over approximately one year from the date of grant, contingent upon the individual remaining a director of ImmunoGen as of each vesting date.  The number of deferred share units awarded is now fixed per the plan on the date of the award and is no longer based on the market price of the Company’s common stock on the date of the award. All unvested deferred stock awards will automatically vest immediately prior to the occurrence of a change of control.

 

In addition to the deferred share units, the Non-Employee Directors are also entitled to receive a fixed number of stock options determined using the Black-Scholes option pricing model measured on the date of grant, which would be the date of the annual meeting of shareholders.  These options vest quarterly over approximately one year from the date of grant.  Any new directors will receive a pro-rated award, depending on their date of election to the Board.  The directors received a total of 80,000 stock options in November of 2015 and 2014, respectively, and the related compensation expense for the three and six months ended December 31, 2015 and 2014 is included in the amounts discussed in the “Stock-Based Compensation” section of footnote A above.

 

During the three and six months ended December 31, 2015, the Company recorded approximately $82,000 and $164,000 in compensation expense, respectively, related to deferred share units issued and outstanding under the Company’s Compensation Policy

 

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for Non-Employee Directors, compared to $118,000 and $236,000 in compensation expense recorded during the three and six months ended December 31, 2014.

 

E.    Commitments and Contingencies

 

Leases

 

The Company currently has a lease agreement with CRP/King 830 Winter L.L.C. for the rental of approximately 110,000 square feet of laboratory and office space at 830 Winter Street, Waltham, MA through March 2026. The Company uses this space for its corporate headquarters and other operations.  The Company may extend the lease for two additional terms of five years.  Pursuant to lease amendments executed in December 2013 and April 2014, the Company received construction allowances of approximately $746,000 and $1.1 million, respectively, to build out office and lab space to the Company’s specifications, and will receive up to $196,000 as a construction allowance pursuant to an amendment executed in December 2015.  The Company is required to pay certain operating expenses for the leased premises subject to escalation charges for certain expense increases over a base amount.

 

The Company also leases manufacturing and office space at 333 Providence Highway, Norwood, MA under an agreement through 2018 with an option to extend the lease for an additional term of five years. The Company is required to pay certain operating expenses for the leased premises subject to escalation charges for certain expense increases over a base amount.

 

Effective April 2013, the Company entered into a lease agreement with River Ridge Limited Partnership for the rental of 7,507 square feet of additional office space at 100 River Ridge Drive, Norwood, MA. The initial term of the lease is for five years and two months commencing in July 2013 with an option for the Company to extend the lease for an additional term of five years. The Company is required to pay certain operating expenses for the leased premises subject to escalation charges for certain expense increases over a base amount. The Company entered into a sublease in December 2014 for this space, effective from January 2015 through July 2018.

 

The minimum rental commitments for the Company’s facilities, including real estate taxes and other expenses, for the next five fiscal years and thereafter under the non-cancelable operating lease agreements discussed above are as follows (in thousands):

 

2016 (six months remaining)

 

$

3,702

 

2017

 

7,444

 

2018

 

7,553

 

2019

 

6,745

 

2020

 

6,730

 

Thereafter

 

40,690

 

Total minimum lease payments

 

$

72,864

 

Total minimum rental payments from sublease

 

(310

)

Total minimum lease payments, net

 

$

72,554

 

 

There are no obligations under capital leases as of December 31, 2015, as all of the capital leases were single payment obligations which have all been made.

 

Collaborations

 

The Company is contractually obligated to make potential future success-based development, regulatory or sales milestone payments in conjunction with certain collaborative agreements. These payments are contingent upon the occurrence of certain future events and, given the nature of these events, it is unclear when, if ever, the Company may be required to pay such amounts. Further, the timing of any future payment is not reasonably estimable. As of December 31, 2015, the maximum amount that may be payable in the future under the Company’s current collaborative agreements is $162 million, $1.4 million of which is reimbursable by a third party under a separate agreement.

 

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

 

OVERVIEW

 

Since our inception, we have been principally engaged in the development of novel, antibody-drug conjugates, or ADCs, for the treatment of cancer using our expertise in cancer biology, monoclonal antibodies, highly potent cytotoxic, or cell-killing, agents, and the design of linkers that enable these agents to remain stably attached to the antibodies while in the blood stream and released in

 

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their fully active form after delivery to a cancer cell. An anticancer compound made using our ADC technology consists of a monoclonal antibody that binds specifically to an antigen target found on the surface of cancer cells with one of our proprietary cell-killing agents attached to the antibody using one of our engineered linkers. Its antibody component enables an ADC compound to bind specifically to cancer cells that express its target antigen, the highly potent cytotoxic agent serves to kill the cancer cell, and the engineered linker controls the release and activation of the cytotoxic agent inside the cancer cell. With some ADC compounds, the antibody component also has anticancer activity of its own. Our ADC technology is designed to enable the creation of highly effective, well-tolerated anticancer products. All of the ADC compounds currently in clinical testing contain either DM1 or DM4 as the cytotoxic agent. Both DM1 and DM4, collectively DMx, are our proprietary derivatives of a cytotoxic agent called maytansine. We also have developed agents we call IGNs, one of which, DGN462, is used in our IMGN779 ADC.

 

We use our proprietary ADC technology in conjunction with our in-house antibody expertise to develop our own anticancer product candidates. We also enter into agreements that enable companies to use our ADC technology to develop and commercialize product candidates to specified targets. Under the terms of our agreements, we are generally entitled to upfront fees, milestone payments, and royalties on any commercial product sales. In addition, under certain agreements we are compensated for research and development activities performed at our collaborative partner’s request at negotiated prices which are generally consistent with what other third parties would charge. We are compensated to manufacture preclinical and clinical materials and deliver cytotoxic agent material at negotiated prices which are generally consistent with what other third parties would charge. Currently, our partners include Amgen, Bayer, Biotest, Lilly, Novartis, Roche, Sanofi and Takeda. We also have a research agreement with CytomX Therapeutics that allows each company to develop probody-drug conjugates against a specified number of cancer targets using CytomX’s Probody antibody masking technology with our payload agents and engineered linkers. We expect that substantially all of our revenue for the foreseeable future will result from payments under our collaborative arrangements. In addition to the discussion below for certain agreements, details for all of our significant agreements can be found in our 2015 Annual Report on Form 10-K

 

Roche—In May 2000, we granted Genentech, now a unit of Roche, an exclusive license to use our maytansinoid ADC technology with antibodies, such as trastuzumab, or other proteins that target HER2. Pursuant to this agreement, Roche developed and received marketing approval for its HER2-targeting ADC compound, Kadcyla, in the U.S., Europe, Japan and numerous other countries. We receive royalty reports and payments related to sales of Kadcyla from Roche one quarter in arrears. In accordance with our revenue recognition policy, $12 million of non-cash royalties on net sales of Kadcyla for the six-month period ended September 30, 2015 were recorded and included in revenue for the six months ended December 31, 2015 and $8.8 million of royalties on net sales of Kadcyla for the six-month period ended September 30, 2014 were included in royalty revenue for the six months ended December 31, 2014. In April 2015, we consummated a royalty purchase transaction — see Liquidity and Capital Resources below for further details. Included in the three and six months ended December 31, 2015 is $195,000 of cash royalties resulting from an adjustment recorded in the current period related to net sales of Kadcyla prior to the effective date of the royalty purchase transaction.

 

Amgen— Under a now-expired right-to-test agreement, in December 2012, Amgen took an exclusive development and commercialization license, for which the Company received an exercise fee of $1 million. The Company is also entitled to receive up to a total of $34 million in milestone payments, plus royalties on the commercial sales of any resulting products from this license. The total milestones are categorized as follows: development milestones—$9 million; regulatory milestones—$20 million; and sales milestones—$5 million. In September 2015, the IND application for its third ADC product candidate under this license became effective, triggering a $1 million milestone payment to us which is included in license and milestone fee revenue for the six months ended December 31, 2015.

 

In December 2015, Amgen advised the Company that it had discontinued development of two product candidates, AMG 595 and AMG 172 that had been covered by two of Amgen’s four exclusive licenses.  Through December 31, 2015, we have received and recognized an aggregate of $2 million of a potential $68 million in milestone payments for compounds covered under these two agreements.

 

Sanofi— In July 2003, we entered into a broad collaboration agreement with Sanofi (formerly Aventis) to discover, develop and commercialize antibody-based products. The collaboration agreement provides Sanofi with worldwide development and commercialization rights to new antibody-based products directed to targets that are included in the collaboration, including the exclusive right to use our maytansinoid ADC technology in the creation of products developed to these targets. The product candidates (targets) as of December 31, 2015 in the collaboration include isatuximab (CD38), SAR566658 (CA6), SAR408701 (CEACAM5) and one earlier-stage compound that has yet to be disclosed.

 

We are entitled to receive milestone payments potentially totaling $21.5 million, per target, payments, plus royalties on the commercial sales of any resulting products. The total milestones are categorized as follows: development milestones—$7.5 million; and regulatory milestones—$14 million. Through December 31, 2015, we have received and recognized an aggregate of $20.5 million in milestone payments for compounds covered under this agreement now or in the past, including a $3 million development milestone related to initiation of a Phase IIb clinical trial (as defined in the agreement) for isatuximab and a $1 million development milestone

 

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related to initiation of a Phase I clinical trial for SAR408701 which are included in license and milestone fee revenue for the six months ended December 31, 2014.

 

In December 2006, we entered into a right-to-test agreement with Sanofi. The agreement provides Sanofi with the right to (a) test our maytansinoid ADC technology with Sanofi’s antibodies to targets under a right-to-test, or research, license, (b) take exclusive options, with certain restrictions, to specified targets for specified option periods and (c) upon exercise of those options, take exclusive licenses to use our maytansinoid ADC technology to develop and commercialize products directed to the specified targets on terms agreed upon at the inception of the right-to-test agreement. Sanofi no longer has the right to take additional options under the agreement, although multiple outstanding options remain in effect for the remainder of their respective option periods. For each development and commercialization license taken, we are entitled to receive an exercise fee of $2 million and up to a total of $30 million in milestone payments, plus royalties on the commercial sales of any resulting products. The total milestones are categorized as follows: development milestones—$10 million; and regulatory milestones—$20 million.

 

In December 2013, Sanofi took its first exclusive development and commercialization license under the right-to-test agreement, for which we received an exercise fee of $2 million and was recognizing this amount as revenue ratably over our estimated period of its substantial involvement. We had previously estimated this development period would conclude at the end of non-pivotal Phase II testing.  During the first quarter of fiscal 2015, we determined we will not be substantially involved in the development and commercialization of the product based on Sanofi’s current plans to develop and manufacture the product without our assistance. As a result of this determination, we recognized the balance of the upfront exercise fee during the prior period.  This change in estimate resulted in an increase to license and milestone fees of $1.7 million for the six months ended December 31, 2014 compared to amounts that would have been recognized pursuant to our previous estimate.  Pursuant to this license agreement, in October 2015, Sanofi initiated Phase I, first-in-human clinical testing of its ADC product candidate, SAR428926 (LAMP1), triggering a $2 million development milestone payment to us which is included in license and milestone fee revenue for the three and six months ended December 31, 2015.

 

Bayer

 

In October 2008, we granted Bayer an exclusive development and commercialization license to our ADC technology for use with antibodies or other proteins that target mesothelin. We received a $4 million upfront payment upon execution of the agreement, and—for each compound developed and marketed by Bayer under this collaboration—we are entitled to receive a total of $170.5 million in milestone payments, plus royalties on the commercial sales of any resulting products. The total milestones are categorized as follows: development milestones—$16 million; regulatory milestones—$44.5 million; and sales milestones—$110 million. Through December 31, 2015, we have received and recognized an aggregate of $3 million in milestone payments under this agreement. In January 2016, Bayer initiated a Phase II clinical study designed to support registration of its ADC product candidate, anetumab ravtansine, triggering a $10 million milestone payment being due to us.

 

Lilly— Under a now-expired right-to-test agreement executed in December 2011, Lilly has taken three exclusive development and commercialization licenses. We received a $20 million upfront payment in connection with the execution of the right-to-test agreement, and for the first development and commercialization license taken in August 2013 and amended in December 2013, we received an exercise fee in the amount of $2 million and are entitled to receive up to a total of $199 million in milestone payments, plus royalties on the commercial sales of any resulting products. The second and third exclusive licenses were taken in December 2014, one of which we received an exercise fee in the amount of $2 million and are entitled to receive up to a total of $199 million in milestone payments, plus royalties on the commercial sales of any resulting products.  For the third license taken in December 2014, for which we did not receive an exercise fee, we are entitled to receive up to a total of $200.5 million in milestone payments, plus royalties on the commercial sales of any resulting products. The total milestones are categorized as follows: development milestones—$29 million for the two development and commercialization licenses with the $2 million exercise fee, and $30.5 million for the one development and commercialization license with no exercise fee; regulatory milestones—$70 million in all cases; and sales milestones—$100 million in all cases. In September 2015, Lilly began Phase I evaluation of one of their potential products which triggered a $5 million milestone payment to us which is included in license and milestone fee revenue for the six months ended December 31, 2015.

 

Takeda— In March 2015, we entered into a right-to-test agreement with Takeda Pharmaceutical Company Limited (Takeda) through its wholly owned subsidiary, Millennium Pharmaceuticals, Inc.  We received a $20 million upfront payment in connection with the execution of the right-to-test agreement. Takeda must exercise its options for the development and commercialization licenses by the end of the three-year term of the right-to-test agreement, after which any then outstanding options will lapse.  Takeda has the right to extend the three-year right-to-test period for one additional year by payment to us of $4 million.  Alternatively, Takeda has the right to expand the scope of the right-to-test agreement by payment to us of $8 million.  If Takeda opts to expand the scope of the right-to-test agreement, it will be entitled to take additional exclusive options, one of which may be exercised for an additional development and commercialization license, and the right-to test period will be extended until the fifth anniversary of the effective date of the right-to-test agreement. The first exclusive license was taken by Takeda in December 2015, an as a result, we recognized

 

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$8.6 million of the $26 million of arrangement consideration allocated to the development and commercialization licenses, which is included in license and milestone fee revenue for the three and six months ended December 31, 2015. For each development and commercialization license taken, we are entitled to receive up to a total of $210 million in milestone payments, plus royalties on the commercial sales of any resulting products. The total milestones are categorized as follows: development milestones—$30 million; regulatory milestones—$85 million; and sales milestones—$95 million.

 

To date, we have not generated revenues from commercial sales of internal products and we expect to incur significant operating losses for the foreseeable future. As of December 31, 2015, we had approximately $212.3 million in cash and cash equivalents compared to $278.1 million in cash and cash equivalents as of June 30, 2015.

 

We anticipate that future cash expenditures will be partially offset by collaboration-derived proceeds, including milestone payments and upfront fees. Accordingly, period-to-period operational results may fluctuate dramatically based upon the timing of receipt of the proceeds. We believe that our established collaborative agreements, while subject to specified milestone achievements, will provide funding to assist us in meeting obligations under our collaborative agreements while also assisting in providing funding for the development of internal product candidates and technologies. However, we can give no assurances that such collaborative agreement funding will, in fact, be realized in the time frames we expect, or at all. Should we or our partners not meet some or all of the terms and conditions of our various collaboration agreements, we may be required to secure alternative financing arrangements, find additional partners and/or defer or limit some or all of our research, development and/or clinical projects. However, we cannot provide assurance that any such opportunities presented by additional partners or alternative financing arrangements will be entirely available to us, if at all.

 

Non-Cash Interest Expense on Liability Related to Sale of Future Royalty

 

In April 2015, Immunity Royalty Holdings, L.P. (IRH) purchased our right to receive 100% of the royalty payments on commercial sales of Kadcyla subsequent to December 31, 2014, arising under our development and commercialization license with Genentech, until IRH has received aggregate royalties equal to $235 million or $260 million, depending on when the aggregate royalties received by IRH reach a specified milestone.  As described in Note C to our Consolidated Financial Statements, this royalty sale transaction has been recorded as a liability that amortizes over the estimated royalty payment period as Kadcyla royalties are remitted directly to the purchaser. We impute interest on the transaction and record interest expense at the effective interest rate, which we currently estimate to be 9.7%. There are a number of factors that could materially affect the estimated interest rate, in particular, the amount and timing of royalty payments from future net sales of Kadcyla, and we will assess this estimate on a periodic basis. As a result, future interest rates could differ significantly and any such change in interest rate will be adjusted prospectively.

 

Critical Accounting Policies

 

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to our collaborative agreements, clinical trial accruals, inventory and stock-based compensation. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from these estimates.

 

There were no significant changes to our critical accounting policies from those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2015.

 

RESULTS OF OPERATIONS

 

Comparison of Three Months ended December 31, 2015 and 2014

 

Revenues

 

Our total revenues for the three months ended December 31, 2015 and 2014 were $18 million and $48.3 million, respectively. The $30.3 million decrease in revenues in the three months ended December 31, 2015 from the same period in the prior year is attributable to a decrease in license and milestone fees and clinical materials revenue, partially offset by an increase in royalty revenue and research and development revenue, all of which are discussed below.

 

Revenues from license and milestone fees for the three months ended December 31, 2015 decreased $30.7 million to $10.7 million from $41.4 million in the same period ended December 31, 2014. Included in license and milestone fees for the three months ended December 31, 2015 is $8.6 million of license revenue earned upon the execution of a development and commercialization license taken by Takeda and a $2 million development milestone achieved under a license agreement with Sanofi.  Included in license

 

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and milestone fees for the three months ended December 31, 2014 is $15.6 million of license revenue earned upon the execution of two development and commercialization licenses by Lilly and $25.7 million of license revenue earned upon the execution of three development and commercialization licenses by Novartis. The amount of license and milestone fees we earn is directly related to the number of our collaborators, the collaborators’ advancement of the product candidates, and the overall success in the clinical trials of the product candidates. As such, the amount of license and milestone fees may vary significantly from quarter to quarter and year to year.  Total revenue from license and milestone fees recognized from each of our collaborative partners in the three-month periods ended December 31, 2015 and 2014 is included in the following table (in thousands):

 

 

 

Three Months Ended December 31,

 

License and Milestone Fees

 

2015

 

2014

 

Collaborative Partner:

 

 

 

 

 

Amgen

 

$

5

 

$

5

 

Biotest

 

6

 

6

 

Lilly

 

5

 

15,627

 

Novartis

 

45

 

25,779

 

Sanofi

 

1,999

 

 

Takeda

 

8,632

 

 

Total

 

$

10,692

 

$

41,417

 

 

Deferred revenue of $33.6 million as of December 31, 2015 primarily represents consideration received from our collaborators pursuant to our license agreements, which we have yet to earn pursuant to our revenue recognition policy. Included within this amount is $13 million of non-cash consideration recorded in connection with our arrangement with CytomX during fiscal 2014.

 

Kadcyla is an ADC marketed product resulting from one of our development and commercialization licenses with Roche, through its Genentech unit. We receive royalty reports and payments related to sales of Kadcyla from Roche one quarter in arrears. In accordance with our revenue recognition policy, $6.3 million of non-cash royalties on net sales of Kadcyla for the three-month period ended September 30, 2015 were recorded and included in revenue for the three months ended December 31, 2015 and $4.6 million of royalties on net sales of Kadcyla for the three-month period ended September 30, 2014 is included in revenue for the three months ended December 31, 2014. We expect non-cash royalty revenue to increase in future periods as the underlying net sales of Kadcyla increase.  In April 2015, we consummated a royalty purchase transaction — see Liquidity and Capital Resources below for further details.  Included in the three months ended December 31, 2015 is $195,000 of cash royalties resulting from an adjustment recorded in the current period related to net sales of Kadcyla prior to the effective date of the royalty purchase transaction.

 

Research and development support revenue was $848,000 for the three months ended December 31, 2015 compared with $832,000 for the three months ended December 31, 2014. These amounts primarily represent research funding earned based on actual resources utilized under our agreements with our collaborators shown in the table below. Also included in research and development support revenue are fees for developing antibody-specific conjugation processes on behalf of our collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development. The amount of research and development support revenue we earn is directly related to the number of our collaborators and potential collaborators, the stage of development of our collaborators’ product candidates and the resources our collaborators allocate to the development effort. As such, the amount of research and development support revenue may vary widely from quarter to quarter and year to year. Total revenue recognized from research and development support from each of our collaborative partners in the three-month periods ended December 31, 2015 and 2014 is included in the following table (in thousands):

 

 

 

Three Months Ended December 31,

 

Research and Development Support

 

2015

 

2014

 

Collaborative Partner:

 

 

 

 

 

Amgen

 

$

 

$

19

 

Biotest

 

69

 

70

 

CytomX

 

329

 

9

 

Lilly

 

106

 

464

 

Novartis

 

68

 

259

 

Takeda

 

276

 

 

Other

 

 

11

 

Total

 

$

848

 

$

832

 

 

Clinical materials revenue was $3,000 for the three months ended December 31, 2015 compared with $1.4 million for the three months ended December 31, 2014. We are compensated at negotiated prices which are generally consistent with what other

 

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third-parties would charge. The amount of clinical materials revenue we earn, and the related cost of clinical materials charged to research and development expense, is directly related to the number of clinical trials our collaborators who use us to manufacture clinical materials are preparing or have underway, the speed of enrollment in those trials, the dosage schedule of each clinical trial and the time period, if any, during which patients in the trial receive clinical benefit from the clinical materials, and the demand our collaborators have for clinical-grade material for process development and analytical purposes. As such, the amount of clinical materials revenue and the related cost of clinical materials charged to research and development expense may vary significantly from quarter to quarter and year to year.

 

Research and Development Expenses

 

Our research and development expenses relate to (i) research to evaluate new targets and to develop and evaluate new antibodies, linkers and cytotoxic agents, (ii) preclinical testing of our own and, in certain instances, our collaborators’ product candidates, and the cost of our own clinical trials, (iii) development related to clinical and commercial manufacturing processes and (iv) manufacturing operations which also includes raw materials.

 

Research and development expense for the three months ended December 31, 2015 increased $10.6 million to $38.2 million from $27.6 million for the three months ended December 31, 2014. A more detailed discussion of research and development expense in the period follows.

 

We are unable to accurately estimate which potential product candidates, if any, will eventually move into our internal preclinical research program. We are unable to reliably estimate the costs to develop these products as a result of the uncertainties related to discovery research efforts as well as preclinical and clinical testing. Our decision to move a product candidate into the clinical development phase is predicated upon the results of preclinical tests. We cannot accurately predict which, if any, of the discovery stage product candidates will advance from preclinical testing and move into our internal clinical development program. The clinical trial and regulatory approval processes for our product candidates that have advanced or that we intend to advance to clinical testing are lengthy, expensive and uncertain in both timing and outcome. As a result, the pace and timing of the clinical development of our product candidates is highly uncertain and may not ever result in approved products. Completion dates and development costs will vary significantly for each product candidate and are difficult to predict. A variety of factors, many of which are outside our control, could cause or contribute to the prevention or delay of the successful completion of our clinical trials, or delay or prevent our obtaining necessary regulatory approvals. The costs to take a product through clinical trials are dependent upon, among other factors, the clinical indications, the timing, size and design of each clinical trial, the number of patients enrolled in each trial, and the speed at which patients are enrolled and treated. Product candidates may be found to be ineffective or to cause unacceptable side effects during clinical trials, may take longer to progress through clinical trials than anticipated, may fail to receive necessary regulatory approvals or may prove impractical to manufacture in commercial quantities at reasonable cost or with acceptable quality.

 

The lengthy process of securing FDA approvals for new drugs requires the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining, regulatory approvals, would materially adversely affect our product development efforts and our business overall. Accordingly, we cannot currently estimate, with any degree of certainty, the amount of time or money that we will be required to expend in the future on our product candidates prior to their regulatory approval, if such approval is ever granted. As a result of these uncertainties surrounding the timing and outcome of our clinical trials, we are currently unable to estimate when, if ever, our product candidates that have advanced into clinical testing will generate revenues and cash flows.

 

We do not track our research and development costs by project. Since we use our research and development resources across multiple research and development projects, we manage our research and development expenses within each of the categories listed in the following table and described in more detail below (in thousands):

 

 

 

Three Months Ended December 31,

 

Research and Development Expense

 

2015

 

2014

 

Research

 

$

5,963

 

$

4,604

 

Preclinical and Clinical Testing

 

18,033

 

11,024

 

Process and Product Development

 

2,889

 

1,990

 

Manufacturing Operations

 

11,314

 

10,029

 

Total Research and Development Expense

 

$

38,199

 

$

27,647

 

 

Research:  Research includes expenses primarily associated with activities to identify and evaluate new targets and to develop and evaluate new antibodies, linkers and cytotoxic agents for our products and in support of our collaborators. Such expenses primarily include personnel, contract services, research licensing fees, facilities and lab supplies. Research expenses for the three months ended December 31, 2015 increased $1.4 million compared to the three months ended December 31, 2014. This increase is

 

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principally due to an increase in salaries and related expenses driven primarily by increases in personnel. We expect research expenses for fiscal 2016 to be higher than fiscal 2015 due to increases in personnel.

 

Preclinical and Clinical Testing: Preclinical and clinical testing includes expenses related to preclinical testing of our own and, in certain instances, our collaborators’ product candidates, regulatory activities, and the cost of our own clinical trials. Such expenses include personnel, patient enrollment at our clinical testing sites, consultant fees, contract services, and facility expenses. Preclinical and clinical testing expenses for the three months ended December 31, 2015 increased $7 million to $18 million compared to $11 million for the three months ended December 31, 2014. This increase is primarily the result of an increase in contract service expense and clinical trial expense driven primarily by increased activities related to mirvetuximab ravtansine, and to a lesser extent, increased activities related to IMGN529.  Salaries and related expenses also increased due primarily to increases in personnel to support internal efforts. We expect preclinical and clinical testing expenses for fiscal 2016 to be significantly higher than fiscal 2015 driven primarily by increased activities to advance our wholly owned product candidates, mirvetuximab ravtansine and IMGN529, to Phase II clinical testing, as well as initiate Phase I clinical testing of IMGN779.

 

Process and Product Development:  Process and product development expenses include costs for development of clinical and commercial manufacturing processes for our own and collaborator compounds. Such expenses include the costs of personnel, contract services and facility expenses. For the three months ended December 31, 2015, total development expenses increased $899,000 compared to the three months ended December 31, 2014. This increase is principally due to an increase in salaries and related expenses driven primarily by increases in personnel and an increase in contract services driven by increased development activities related to our cytotoxic agents. We expect process and product development expenses for fiscal 2016 to be significantly higher than fiscal 2015 due to increases in personnel to support internal and partner efforts and increases in contract services to support further development of our cytotoxic agents.

 

Manufacturing Operations: Manufacturing operations expense includes costs to manufacture preclinical and clinical materials for our own and our collaborator’s product candidates, and quality control and quality assurance activities and costs to support the operation and maintenance of our conjugate manufacturing facility. Such expenses include personnel, raw materials for our and our collaborators’ preclinical studies and clinical trials, development costs with contract manufacturing organizations, manufacturing supplies, and facilities expense. For the three months ended December 31, 2015, manufacturing operations expense increased $1.3 million to $11.3 million compared to $10.0 million in the same period last year. The increase in the three months ended December 31, 2015 as compared to the three months ended December 31, 2014 is principally the result of an increase in antibody development and supply costs driven primarily by timing of supply requirements for our mirvetuximab soravtansine and coltuximab programs.  We expect manufacturing operations expense for fiscal 2016 to be higher than fiscal 2015 due primarily to increased activities to advance our wholly owned product candidates.

 

General and Administrative Expenses

 

General and administrative expenses for the three months ended December 31, 2015 increased $1.2 million compared to the same period last year. This increase is primarily due to inflationary increases in salaries and related expenses and additional personnel. We expect general and administrative expenses for fiscal 2016 to be higher than fiscal 2015 due primarily to increased salaries and related expenses.

 

Investment Income, net

 

Investment income for the three months ended December 31, 2015 and 2014 was $60,000 and $14,000, respectively.

 

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Non-Cash Interest Expense on Liability Related to Sale of Future Royalty

 

In April 2015, Immunity Royalty Holdings, L.P. (IRH) purchased our right to receive 100% of the royalty payments on commercial sales of Kadcyla subsequent to December 31, 2014, arising under our development and commercialization license with Genentech, until IRH has received aggregate royalties equal to $235 million or $260 million, depending on when the aggregate royalties received by IRH reach a specified milestone.  As described in Note C to our Consolidated Financial Statements, this royalty sale transaction has been recorded as a liability that amortizes over the estimated royalty payment period as Kadcyla royalties are remitted directly to the purchaser. During the three months ended December 31, 2015, we recorded $5.1 million of non-cash interest expense.  We impute interest on the transaction and record interest expense at the effective interest rate, which we currently estimate to be 9.7%. There are a number of factors that could materially affect the estimated interest rate, in particular, the amount and timing of royalty payments from future net sales of Kadcyla, and we will assess this estimate on a periodic basis. As a result, future interest rates could differ significantly and any such change in interest rate will be adjusted prospectively.

 

Other Expense, net

 

Other expense, net for the three months ended December 31, 2015 and 2014 was $4,000 and $160,000, respectively. We incurred $24,000 and $166,000 in foreign currency exchange losses related to obligations with non-U.S. dollar-based suppliers and Euro cash balances maintained to fulfill them during the three months ended December 31, 2015 and 2014, respectively.

 

Comparison of Six Months ended December 31, 2015 and 2014

 

Revenues

 

Our total revenues for the six months ended December 31, 2015 and 2014 were $32.9 million and $61.5 million, respectively. The $28.6 million decrease in revenues in the six months ended December 31, 2015 from the same period in the prior year is attributable to a decrease in license and milestone fees and clinical materials revenue, partially offset by an increase in royalty revenue and research and development support revenue, all of which are discussed below.

 

Revenues from license and milestone fees for the six months ended December 31, 2015 decreased $30.9 million to $16.8 million from $47.7 million in the same period ended December 31, 2014. Included in license and milestone fees for the six months ended December 31, 2015 is $8.6 million of license revenue earned upon the execution of a development and commercialization license taken by Takeda, a $5 million development milestone achieved under a license agreement with Lilly, a $1 million development milestone achieved under a license agreement with Amgen and a $2 million development milestone achieved under a license agreement with Sanofi.  Included in license and milestone fees for the six months ended December 31, 2014 is $15.6 million of license revenue earned upon the execution of two development and commercialization licenses by Lilly, $25.7 million of license revenue earned upon the execution of three development and commercialization licenses by Novartis and $4 million in development milestones achieved under our collaboration agreement with Sanofi.  Also, during the prior-year period, we made a change in estimate to our period of substantial involvement as it relates to an exclusive license with Sanofi which resulted in an increase to license and milestone fees of $1.7 million for the prior period compared to amounts that would have been recognized pursuant to the Company’s previous estimate. The amount of license and milestone fees we earn is directly related to the number of our collaborators, the collaborators’ advancement of the product candidates, and the overall success in the clinical trials of the product candidates. As such, the amount of license and milestone fees may vary significantly from quarter to quarter and year to year.  Total revenue from license and milestone fees recognized from each of our collaborative partners in the six-month periods ended December 31, 2015 and 2014 is included in the following table (in thousands):

 

 

 

Six Months Ended December 31,

 

License and Milestone Fees

 

2015

 

2014

 

Collaborative Partner:

 

 

 

 

 

Amgen

 

$

1,009

 

$

9

 

Biotest

 

12

 

12

 

Janssen

 

 

241

 

Lilly

 

5,011

 

15,633

 

Novartis

 

90

 

25,824

 

Sanofi

 

2,008

 

5,932

 

Takeda

 

8,632

 

 

Total

 

$

16,762

 

$

47,651

 

 

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Kadcyla is an ADC marketed product resulting from one of our development and commercialization licenses with Roche, through its Genentech unit. We receive royalty reports and payments related to sales of Kadcyla from Roche one quarter in arrears. In accordance with our revenue recognition policy, $12 million of non-cash royalties on net sales of Kadcyla for the six-month period ended September 30, 2015 were recorded and included in revenue for the six months ended December 31, 2015 and $8.8 million of royalties on net sales of Kadcyla for the six-month period ended September 30, 2014 is included in revenue for the six months ended December 31, 2014. We expect non-cash royalty revenue to increase in future periods as the underlying net sales of Kadcyla increase.  In April 2015, we consummated a royalty purchase transaction — see Liquidity and Capital Resources below for further details. Included in the six months ended December 31, 2015 is $195,000 of cash royalties resulting from an adjustment recorded in the current period related to net sales of Kadcyla prior to the effective date of the royalty purchase transaction.

 

Research and development support revenue was $1.6 million for each of the six months ended December 31, 2015 and December 31, 2014. These amounts primarily represent research funding earned based on actual resources utilized under our agreements with our collaborators shown in the table below. Also included in research and development support revenue are fees for developing antibody-specific conjugation processes on behalf of our collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development. The amount of research and development support revenue we earn is directly related to the number of our collaborators and potential collaborators, the stage of development of our collaborators’ product candidates and the resources our collaborators allocate to the development effort. As such, the amount of research and development support revenue may vary widely from quarter to quarter and year to year. Total revenue recognized from research and development support from each of our collaborative partners in the six-month periods ended December 31, 2015 and 2014 is included in the following table (in thousands):

 

 

 

Six Months Ended December 31,

 

Research and Development Support

 

2015

 

2014

 

Collaborative Partner:

 

 

 

 

 

Amgen

 

$

30

 

$

38

 

Biotest

 

220

 

180

 

CytomX

 

347

 

40

 

Lilly

 

261

 

873

 

Novartis

 

99

 

456

 

Takeda

 

661

 

 

Other

 

2

 

21

 

Total

 

$

1,620

 

$

1,608

 

 

Clinical materials revenue was $2.3 million for the six months ended December 31, 2015 compared with $3.5 million for the six months ended December 31, 2014. We are compensated at negotiated prices which are generally consistent with what other third-parties would charge. The amount of clinical materials revenue we earn, and the related cost of clinical materials charged to research and development expense, is directly related to the number of clinical trials our collaborators who use us to manufacture clinical materials are preparing or have underway, the speed of enrollment in those trials, the dosage schedule of each clinical trial and the time period, if any, during which patients in the trial receive clinical benefit from the clinical materials, and the demand our collaborators have for clinical-grade material for process development and analytical purposes. As such, the amount of clinical materials revenue and the related cost of clinical materials charged to research and development expense may vary significantly from quarter to quarter and year to year.

 

Research and Development Expenses

 

Research and development expense for the six months ended December 31, 2015 increased $17.6 million to $73.3 million from $55.7 million for the six months ended December 31, 2014. A more detailed discussion of research and development expense in the period follows.

 

We are unable to accurately estimate which potential product candidates, if any, will eventually move into our internal preclinical research program. We are unable to reliably estimate the costs to develop these products as a result of the uncertainties related to discovery research efforts as well as preclinical and clinical testing. Our decision to move a product candidate into the clinical development phase is predicated upon the results of preclinical tests. We cannot accurately predict which, if any, of the discovery stage product candidates will advance from preclinical testing and move into our internal clinical development program. The clinical trial and regulatory approval processes for our product candidates that have advanced or that we intend to advance to clinical testing are lengthy, expensive and uncertain in both timing and outcome. As a result, the pace and timing of the clinical development of our product candidates is highly uncertain and may not ever result in approved products. Completion dates and development costs will vary significantly for each product candidate and are difficult to predict. A variety of factors, many of which are outside our control, could cause or contribute to the prevention or delay of the successful completion of our clinical trials, or delay or prevent our obtaining necessary regulatory approvals. The costs to take a product through clinical trials are dependent upon, among

 

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other factors, the clinical indications, the timing, size and design of each clinical trial, the number of patients enrolled in each trial, and the speed at which patients are enrolled and treated. Product candidates may be found to be ineffective or to cause unacceptable side effects during clinical trials, may take longer to progress through clinical trials than anticipated, may fail to receive necessary regulatory approvals or may prove impractical to manufacture in commercial quantities at reasonable cost or with acceptable quality.

 

The lengthy process of securing FDA approvals for new drugs requires the expenditure of substantial resources. Any failure by us to obtain, or any delay in obtaining, regulatory approvals, would materially adversely affect our product development efforts and our business overall. Accordingly, we cannot currently estimate, with any degree of certainty, the amount of time or money that we will be required to expend in the future on our product candidates prior to their regulatory approval, if such approval is ever granted. As a result of these uncertainties surrounding the timing and outcome of our clinical trials, we are currently unable to estimate when, if ever, our product candidates that have advanced into clinical testing will generate revenues and cash flows.

 

We do not track our research and development costs by project. Since we use our research and development resources across multiple research and development projects, we manage our research and development expenses within each of the categories listed in the following table and described in more detail below (in thousands):

 

 

 

Six Months Ended December 31,

 

Research and Development Expense

 

2015

 

2014

 

Research

 

$

11,903

 

$

9,592

 

Preclinical and Clinical Testing

 

33,531

 

21,216

 

Process and Product Development

 

5,582

 

4,244

 

Manufacturing Operations

 

22,315

 

20,613

 

Total Research and Development Expense

 

$

73,331

 

$

55,665

 

 

Research:  Research includes expenses primarily associated with activities to identify and evaluate new targets and to develop and evaluate new antibodies, linkers and cytotoxic agents for our products and in support of our collaborators. Such expenses primarily include personnel, contract services, research licensing fees, facilities and lab supplies. Research expenses for the six months ended December 31, 2015 increased $2.3 million compared to the six months ended December 31, 2014. This increase is principally due to an increase in salaries and related expenses driven primarily by increases in personnel, and to a lesser extent, an increase in lab supplies driven by increased activity. We expect research expenses for fiscal 2016 to be higher than fiscal 2015 due primarily to increases in personnel to support internal and partner efforts.

 

Preclinical and Clinical Testing: Preclinical and clinical testing includes expenses related to preclinical testing of our own and, in certain instances, our collaborators’ product candidates, regulatory activities, and the cost of our own clinical trials. Such expenses include personnel, patient enrollment at our clinical testing sites, consultant fees, contract services, and facility expenses. Preclinical and clinical testing expenses for the six months ended December 31, 2015 increased $12.3 million to $33.5 million compared to $21.2 million for the six months ended December 31, 2014. This increase is primarily the result of an increase in contract service expense and clinical trial expense driven primarily by increased activities related to mirvetuximab ravtansine, and to a lesser extent, increased activities related to IMGN529.  Salaries and related expenses also increased due primarily to increases in personnel to support internal efforts.  We expect preclinical and clinical testing expenses for fiscal 2016 to be significantly higher than fiscal 2015 driven primarily by increased activities to advance our wholly owned product candidates, mirvetuximab ravtansine and IMGN529, to Phase II clinical testing, as well as initiate Phase I clinical testing of IMGN779.

 

Process and Product Development:  Process and product development expenses include costs for development of clinical and commercial manufacturing processes for our own and collaborator compounds. Such expenses include the costs of personnel, contract services and facility expenses. For the six months ended December 31, 2015, total development expenses increased $1.3 million compared to the six months ended December 31, 2014. This increase is principally due to an increase in salaries and related expenses driven primarily by increases in personnel and an increase in contract services driven by increased development activities related to our cytotoxic agents. We expect process and product development expenses for fiscal 2016 to be significantly higher than fiscal 2015 due to increases in personnel to support internal and partner efforts and increases in contract services to support further development of our cytotoxic agents.

 

Manufacturing Operations: Manufacturing operations expense includes costs to manufacture preclinical and clinical materials for our own and our collaborator’s product candidates, and quality control and quality assurance activities and costs to support the operation and maintenance of our conjugate manufacturing facility. Such expenses include personnel, raw materials for our and our collaborators’ preclinical studies and clinical trials, development costs with contract manufacturing organizations, manufacturing supplies, and facilities expense. For the six months ended December 31, 2015, manufacturing operations expense increased $1.7 million to $22.3 million compared to $20.6 million in the same period last year. This increase is principally the result of an increase in antibody development and supply costs driven primarily by timing of supply requirements for our mirvetuximab

 

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soravtansine and coltuximab programs, partially offset by costs incurred in the prior year period related to IMGN289 development activities.  The increase is also a result of a decrease in costs capitalized into inventory due to a lesser number of manufactured batches of conjugated materials on behalf of our collaborators.  Partially offsetting these increases, third-party conjugation and fill/finish costs decreased due to timing of certain development activities in the prior period, particularly related to the mirvetuximab soravtansine and IMGN289 programs. We expect manufacturing operations expense for fiscal 2016 to be higher than fiscal 2015 due primarily to increased activities to advance our wholly owned product candidates.

 

General and Administrative Expenses

 

General and administrative expenses for the six months ended December 31, 2015 increased $2.4 million compared to the same period last year. This increase is primarily due to inflationary increases in salaries and related expenses and additional personnel. We expect general and administrative expenses for fiscal 2016 to be higher than fiscal 2015 due primarily to increased salaries and related expenses.

 

Investment Income, net

 

Investment income for the six months ended December 31, 2015 and 2014 was $111,000 and $22,000, respectively.

 

Non-Cash Interest Expense on Liability Related to Sale of Future Royalty

 

In April 2015, Immunity Royalty Holdings, L.P. (IRH) purchased our right to receive 100% of the royalty payments on commercial sales of Kadcyla subsequent to December 31, 2014, arising under our development and commercialization license with Genentech, until IRH has received aggregate royalties equal to $235 million or $260 million, depending on when the aggregate royalties received by IRH reach a specified milestone.  As described in Note C to our Consolidated Financial Statements, this royalty sale transaction has been recorded as a liability that amortizes over the estimated royalty payment period as Kadcyla royalties are remitted directly to the purchaser. During the six months ended December 31, 2015, we recorded $10.2 million of non-cash interest expense.  We impute interest on the transaction and record interest expense at the effective interest rate, which we currently estimate to be 9.7%. There are a number of factors that could materially affect the estimated interest rate, in particular, the amount and timing of royalty payments from future net sales of Kadcyla, and we will assess this estimate on a periodic basis. As a result, future interest rates could differ significantly and any such change in interest rate will be adjusted prospectively.

 

Other Expense, net

 

Other expense, net for the six months ended December 31, 2015 and 2014 was $42,000 and $540,000, respectively. We incurred $68,000 and $547,000 in foreign currency exchange losses related to obligations with non-U.S. dollar-based suppliers and Euro cash balances maintained to fulfill them during the six months ended December 31, 2015 and 2014, respectively.

 

LIQUIDITY AND CAPITAL RESOURCES

 

 

 

As of

 

 

 

December 31,

 

June 30,

 

 

 

2015

 

2015

 

 

 

(In thousands)

 

Cash and cash equivalents

 

$

212,283

 

$

278,109

 

Shareholders’ equity

 

(16,686

)

35,104

 

 

 

 

Six Months Ended December 31,

 

 

 

2015

 

2014

 

 

 

(In thousands)

 

Cash used for operating activities

 

$

(65,490

)

$

(34,383

)

Cash used for investing activities

 

(5,127

)

(2,590

)

Cash provided by financing activities

 

4,791

 

1,316

 

 

Cash Flows

 

We require cash to fund our operating expenses, including the advancement of our own clinical programs, and to make capital expenditures. Historically, we have funded our cash requirements primarily through equity financings in public markets and

 

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payments from our collaborators, including license fees, milestones, research funding and more recently, royalties. As of December 31, 2015, we had approximately $212.3 million in cash and cash equivalents. Net cash used for operations was $65.5 million and $34.4 million for the six months ended December 31, 2015 and 2014, respectively. The principal use of cash for operating activities for both periods presented was to fund our net loss.

 

Net cash used for investing activities was $5.1 million and $2.6 million for the six months ended December 31, 2015 and 2014, respectively, and represents cash outflows for capital expenditures, primarily for the purchase of new equipment and leasehold improvements.

 

Net cash provided by financing activities was $4.8 million and $1.3 million for the six months ended December 31, 2015 and 2014, respectively, which represents proceeds from the exercise of approximately 461,000 and 177,000 stock options, respectively.

 

In March 2015, we entered into a royalty purchase agreement with Immunity Royalty Holdings, L.P., which became effective on April 3, 2015, pursuant to which Immunity Royalty Holdings purchased our right to receive 100% of the royalty payments on commercial sales of Kadcyla® subsequent to December 31, 2014, arising under our License Agreement with Genentech, Inc. dated as of May 2, 2000, as amended, until Immunity Royalty Holdings has received aggregate Kadcyla royalties equal to $235 million or $260 million, depending on when the aggregate Kadcyla royalties received by Immunity Royalty Holdings reach a specified milestone.  Once the applicable threshold is met, if ever, we will thereafter receive 85% and Immunity Royalty Holdings will receive 15% of the Kadcyla royalties for the remaining royalty term.  At consummation of the transaction in April 2015, we received gross cash proceeds of $200 million.  The Company recorded these cash proceeds as a deferred royalty obligation liability which will be amortized over the expected royalty recovery period.  As part of this transaction, the Company incurred approximately $5.9 million in transaction costs.

 

We anticipate that our current capital resources and expected future collaborator payments under existing collaborations will enable us to meet our operational expenses and capital expenditures through fiscal year 2017. However, we cannot provide assurance that such future collaborative agreement funding will, in fact, be received. Should we or our partners not meet some or all of the terms and conditions of our various collaboration agreements, we may be required to pursue additional strategic partners, secure alternative financing arrangements, and/or defer or limit some or all of our research, development and/or clinical projects.

 

Contractual Obligations

 

There have been no material changes to our contractual obligations during the current period from those disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2015.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued Accounting Standards Update 2014-9, Revenue from Contracts with Customers (Topic 606), to clarify the principles for recognizing revenue. This update provides a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The original effective date would have required us to adopt beginning in our first quarter of fiscal 2018. In July 2015, the FASB voted to amend ASU 2014-09 by approving a one-year deferral of the effective date as well as providing the option to early adopt the standard on the original effective date.  Accordingly, the Company may adopt the standard in either its first quarter of fiscal 2018 or 2019. The new revenue standard allows for either full retrospective or modified retrospective application. We are currently evaluating the timing of its adoption, the transition method to apply and the impact that this guidance will have on our financial statements and related disclosures.

 

In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This new standard gives a company’s management the final responsibilities to decide whether there’s substantial doubt about the company’s ability to continue as a going concern and to provide related footnote disclosures. The standard provides guidance to management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that companies commonly provide in their footnotes. Under the new standard, management must decide whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the company’s ability to continue as a going concern within one year after the date that the financial statements are issued, or within one year after the date that the financial statements are available to be issued when applicable. This guidance is effective for annual reporting beginning after December 15, 2016, including interim periods within the year of adoption, with early application permitted. Accordingly, the standard is effective for us on July 1, 2017. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

 

In April 2015, the FASB issued Accounting Standards Update 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. To simplify presentation of debt issuance costs, this new standard requires that

 

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debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  The recognition and measurement guidance for debt issuance costs are not affected by this update.  This guidance is effective for annual reporting beginning after December 15, 2015, including interim periods within the year of adoption, and calls for retrospective application, with early application permitted. Accordingly, the standard is effective for us on July 1, 2016. Our consolidated balance sheet as of December 31, 2015 includes in assets $5 million of debt issuance costs classified as deferred financing costs.

 

In November 2015, the FASB issued Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740). To simplify the presentation of deferred income taxes, the amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position.  This guidance is effective for annual reporting beginning after December 15, 2016, including interim periods within the year of adoption, with early application permitted. We implemented the recommendations of this Update prospectively, resulting in a reduction of long-term assets and current liabilities of approximately $843,000 as of December 31, 2015. The prior period balances were not retrospectively adjusted.

 

In January 2016, the FASB issued Accounting Standards Update 2016-1, Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825).  The amendments in this Update supersede the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and require equity securities (including other ownership interests, such as partnerships, unincorporated joint ventures, and limited liability companies) to be measured at fair value with changes in the fair value recognized through net income.  The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. The amendments also require enhanced disclosures about those investments. The amendments improve financial reporting by providing relevant information about an entity’s equity investments and reducing the number of items that are recognized in other comprehensive income.  This guidance is effective for annual reporting beginning after December 15, 2017, including interim periods within the year of adoption, and calls for prospective application, with early application permitted. Accordingly, the standard is effective for us on July 1, 2018. The adoption of this guidance is not expected to have a material impact on our consolidated financial statements.

 

Forward-Looking Statements

 

This quarterly report includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information which are based on forecasts of future results and estimates of amounts that are not yet determinable. These statements also relate to our future prospects, developments and business strategies.

 

These forward-looking statements can be identified by their use of terms and phrases, such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will” and other similar terms and phrases, including references to assumptions. They may also use words such as “will,” “would,” “should,” “could” or “may”. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different from those contemplated by our forward-looking statements. These known and unknown risks, uncertainties and other factors are described in detail in the “Risk Factors” section and in other sections of this Annual Report on Form 10-K for the year ended June 30, 2015. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Kadcyla® is a registered trademark of Genentech, Inc., a member of the Roche Group.

Probody™ is a trademark of CytomX Therapeutics, Inc.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

None.

 

ITEM 3.        Quantitative and Qualitative Disclosure about Market Risk

 

Our market risks, and the ways we manage them, are summarized in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the fiscal year ended June 30, 2015. Since then there have been no material changes to our market risks or to our management of such risks.

 

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ITEM 4.        Controls and Procedures

 

(a)        Disclosure Controls and Procedures

 

The Company’s management, with the participation of its principal executive officer and principal financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Company’s principal executive officer and principal financial officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were adequate and effective.

 

(b)         Changes in Internal Controls

 

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

ITEM 1A.               Risk Factors

 

You should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition or future results set forth under Item 1A. (Risk Factors) in our Annual Report on Form 10-K for the fiscal year ended June 30, 2015. There have been no material changes from the factors disclosed in our 2015 Annual Report on Form 10-K, although we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the Securities and Exchange Commission.

 

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ITEM 6.                        Exhibits

 

Exhibit No.

 

Description

 

 

 

10.1

 

Third Amendment to Lease Agreement dated as of December 14, 2015, by and between CRP/King 830 Winter, L.L.C. successor-in-interest to Intercontinental Fund III 830 Winter Street LLC, landlord, and the Registrant

31.1

 

Certification of Principal Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

 

Certification of Principal Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

32†

 

Certifications of Principal Executive Officer and Principal Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase

101.LAB

 

XBRL Taxonomy Extension Label Linkbase

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase

 


                                         Furnished, not filed.

 

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Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

 

ImmunoGen, Inc.

 

 

Date: February 4, 2016

By:

/s/ Daniel M. Junius

 

 

Daniel M. Junius

 

 

President, Chief Executive Officer (Principal Executive Officer)

 

 

Date: February 4, 2016

By:

/s/ David B. Johnston

 

 

David B. Johnston

 

 

Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)

 

33




Exhibit 10.1

 

830 Winter Street

Waltham, Massachusetts 02451

(the “Building”)

 

THIRD AMENDMENT

 

EXECUTION DATE:

 

December 14, 2015

 

 

 

LANDLORD:

 

CRP/King 830 Winter, L.L.C., a Delaware limited liability company, successor-in-interest to Intercontinental Fund III 830 Winter Street, LLC

 

 

 

TENANT:

 

ImmunoGen, Inc.

 

 

a Massachusetts corporation

 

 

 

EXISTING

 

 

PREMISES:

 

Approximately 107,585 rentable square feet of space in the Building, comprising 1,610 rentable square feet in the basement, 52,487 rentable square feet on the first (1st) floor, 38,511 rentable square feet on the second (2nd) floor, 14,126 rentable square feet on the third (3rd) floor, and 851 rentable square feet on the penthouse roof

 

 

 

DATE OF LEASE:

 

July 27, 2007

 

 

 

PREVIOUS LEASE

 

 

AMENDMENTS:

 

First Amendment to Lease Agreement dated December 9, 2014 (the “First Amendment”)

 

 

 

 

 

Second Amendment to Lease Agreement dated April 28, 2014 (the “Second Amendment”)

 

 

 

EXPANSION

 

 

PREMISES:

 

An area on the first (1st) floor of the Building, containing 2,450 rentable square feet, substantially as shown on Exhibit A, Third Amendment, a copy of which is attached hereto

 

WHEREAS, Tenant desires to lease additional premises in the Building from Landlord, to wit, the Expansion Premises (as defined above), upon the terms and conditions hereinafter set forth; and

 

WHEREAS, Landlord is willing to lease the Expansion Premises to Tenant upon the terms and conditions hereinafter set forth.

 

NOW, THEREFORE, the above-described lease, as previously amended (the “Existing Lease”), is hereby further amended as follows (the Existing Lease, as amended hereby, shall hereafter be referred to as the “Lease”).  Any capitalized terms used herein shall have the same

 

1



 

definition as set forth in the Lease, except to the extent otherwise set forth in this Third Amendment.

 

1.                                      DEMISE OF THE EXPANSION PREMISES

 

Landlord hereby demises and leases to Tenant, and Tenant hereby leases from Landlord, the Expansion Premises for a term (the “Expansion Term”) commencing on the Expansion Date, as hereinafter described, and expiring on March 31, 2026 (the “Current Expiration Date”).  The Expansion Premises and the Existing Premises shall collectively be referred to as the “Premises.”  Said demise of the Expansion Premises shall be upon all of the terms and conditions of the Lease applicable to the Existing Premises, except to the extent inconsistent with the terms of this Third Amendment.

 

A.                                    Term Commencement Date.  The Term Commencement Date with respect to the Expansion Premises (the “Expansion Date”) shall be the date that Landlord delivers the Expansion Premises to Tenant with Landlord’s Expansion Premises Work Substantially Complete, as said terms are hereinafter defined, which date is estimated to occur on or about January 1, 2016 (the “Estimated Expansion Date”).  Subject to delays due to Force Majeure and Tenant Delay, each of which terms are hereinafter defined, Landlord shall use all commercially reasonable efforts to deliver the Expansion Premises to Tenant on or before the Estimated Expansion Date with Landlord’s Expansion Premises Work Substantially Complete; however, except as expressly set forth in this Section 1.A, the failure of Landlord to do so shall in no way affect the validity of the Lease, this Third Amendment, or the obligations of Tenant hereunder, and Tenant shall not have any claim against Landlord by reason thereof.  For purposes of this Third Amendment, “Force Majeure” shall be defined as any strike or other labor trouble, fire, flood or other casualty, breakage, accident, repairs, unusually severe weather, governmental preemption of priorities or other controls in connection with a national or other public emergency, governmental moratoria, or inaction of governmental authority (or shortages of fuel, supplies or labor resulting there from), war, civil commotion, labor or transportation difficulties, inability to obtain supplies, or any other cause, whether similar or dissimilar, beyond Landlord’s reasonable control.  The “Expansion Premises Rent Commencement Date” shall be the date that is the earlier of:

 

(x)                                 the date that Tenant commences to use the Expansion Premises (or any portion thereof) for business purposes; and

 

(y)                                 two (2) months after the Expansion Date, except that the Expansion Premises Rent Commencement Date shall be extended for the period of time (if any) that Tenant’s Work is delayed by Landlord Delay (as such term is hereinafter defined).

 

In the event that the Expansion Date does not occur by the Outside Completion Date, as hereinafter defined, then Tenant shall be entitled to an abatement of Fixed Rent equal to $279.03 per day for each day following the Outside Completion Date until the Expansion Date occurs.  The “Outside Completion Date” shall mean the date that is thirty (30) days following the Estimated Expansion Date, provided, however, that the Outside Completion Date shall be extended by the length of any delays in Landlord’s Expansion Premises Work arising from (i) Force Majeure, or (ii) Tenant Delay.

 

2



 

Provided Tenant does not materially interfere with Landlord’s Expansion Premises Work and subject to terms and conditions reasonably determined by Landlord, Tenant shall be permitted reasonable access (at Tenant’s sole risk) to the Expansion Premises prior to the Expansion Date for the sole purpose of taking measurements and evaluating conditions therein for purposes of preparing the Plans (as hereinafter defined).

 

B.                                    Rent.  With respect to the Expansion Premises, Tenant shall pay Fixed Rent and Additional Rent as set forth below:

 

(1)                                 Fixed Rent:  Commencing as of the Expansion Premises Rent Commencement Date and continuing through the Current Expiration Date, as the same may be extended, Tenant shall pay Fixed Rent to Landlord as set forth below:

 

Lease Year*

 

Annual Fixed
Rent

 

Monthly Payment

 

Fixed Rent Per
Rentable Square
Foot

 

Expansion Date — Day Prior to Rent Commencement Date

 

$

-0-

 

$

-0-

 

$

-0-

 

Expansion Premises Rent Commencement Date — End of Lease Year 1

 

$

100,450.00

 

$

8,370.83

 

$

41.00

 

Lease Year 2

 

$

103,463.50

 

$

8,621.96

 

$

42.23

 

Lease Year 3

 

$

106,575.00

 

$

8,881.25

 

$

43.50

 

Lease Year 4

 

$

109,784.50

 

$

9,148.71

 

$

44.81

 

Lease Year 5

 

$

113,067.50

 

$

9,422.29

 

$

46.15

 

Lease Year 6

 

$

116,448.50

 

$

9,704.04

 

$

47.53

 

Lease Year 7

 

$

119,952.00

 

$

9,996.00

 

$

48.96

 

Lease Year 8

 

$

123,553.50

 

$

10,296.13

 

$

50.43

 

Lease Year 9

 

$

127,253.00

 

$

10,604.42

 

$

51.94

 

Lease Year 10

 

$

131,075.00

 

$

10,922.92

 

$

53.50

 

Beginning of Lease Year 11 — 3/31/26

 

$

135,019.50

**

$

11,251.63

 

$

55.11

 

 


*For purposes hereof, “Lease Year” shall mean a twelve-(12)-month period beginning on the Expansion Premises Rent Commencement Date or an anniversary of the Expansion Premises Rent Commencement Date, except that if the Expansion Premises Rent Commencement Date does not fall on the first day of a calendar month, then the first Lease Year shall begin on the Expansion Premises Rent Commencement Date and end on the last day of the month containing the first anniversary of the Expansion Premises Rent Commencement Date, and each succeeding Lease Year shall begin on the day following the last day of the prior Lease Year.

 

3



 

**Annualized

 

(2)                                 Additional Rent.  Commencing as of the Expansion Premises Rent Commencement Date and continuing through the Current Expiration Date, as the same may be extended, Tenant’s Proportionate Share shall be increased to equal 60.4%. Tenant shall pay Taxes and Operating Expenses in accordance with Sections 4 and 5 of the Lease, respectively.

 

(3)                                 Utilities.  Commencing as of the Expansion Premises Rent Commencement Date and continuing through the Current Expiration Date, as the same may be extended, Tenant shall pay for all utilities provided to the Expansion Premises in accordance with Section 6 of the Lease, and with respect to electricity provided to the Premises, Landlord, at Landlord’s cost, shall install a sub-meter to measure the electrical consumption in the Expansion Premises.

 

C.                                    Condition of Expansion Premises; Construction.  Subject to Landlord’s obligation to perform Landlord’s Expansion Premises Work (hereinafter defined) and to provide Landlord’s Maximum Contribution, Tenant acknowledges and agrees that Tenant is leasing the Expansion Premises in its “AS IS,” “WHERE IS” condition and with all faults on the Execution Date, without representations or warranties (except as set forth in this Section 1.C), express or implied, in fact or by law, of any kind, and without recourse to Landlord.  Landlord represents and warrants that to the best of Landlord’s knowledge, without inquiry, there are no Hazardous Materials in existence, in, on or under the Expansion Premises, which are in violation of applicable Legal Requirements.

 

D.                                    Landlord’s Expansion Premises Work.  Landlord, at Landlord’s sole cost and expense, shall demise the Expansion Premises to shell condition and otherwise in accordance with the Landlord/Tenant Responsibility Matrix, attached hereto and incorporated herein as Exhibit B, Third Amendment, (“Landlord’s Expansion Premises Work”).  Landlord’s architect’s Certificate of Substantial Completion, given in good faith, or any other certification regarding any other facts pertinent to Landlord’s Expansion Premises Work shall be deemed conclusive of the statements therein contained and binding upon Tenant, absent manifest error, provided, however, that if Tenant does not give written notice to Landlord within five (5) business days after Tenant’s receipt of Landlord’s architect’s Certificate of Substantial Completion setting forth with specificity Tenant’s objections to such Certificate, the Certificate shall be deemed to be conclusive and binding upon Tenant.

 

(1)                                 Tenant acknowledges that Landlord’s Expansion Premises Work will be performed during Tenant’s occupancy of certain portions of the Premises adjacent to the Expansion Premises.  Landlord shall use diligent efforts to coordinate Landlord’s Expansion Premises Work with Tenant’s schedule, whenever possible, to minimize disruption to Tenant’s business operations in said portions of the Premises, but there shall be no diminution or abatement of Fixed Rent or Additional Rent or other compensation due from Landlord to Tenant hereunder, nor shall the Lease or this Third Amendment be affected or any of Tenant’s obligations hereunder or thereunder be reduced, and Landlord shall have no responsibility or liability for any inconvenience or disruption to Tenant’s business operations.

 

4



 

(2)                                 A “Tenant Delay” shall be defined as any act or omission by Tenant or any employee, agent, representative, consultant, contractor or subcontractor of Tenant, which causes an actual delay in the completion of Landlord’s Expansion Premises Work.  Notwithstanding the foregoing, no event shall be deemed to be a Tenant Delay until and unless Landlord has given Tenant written notice (the “Tenant Delay Notice”) advising Tenant (i) that a Tenant Delay is occurring, (ii) of the basis on which Landlord has determined that a Tenant Delay is occurring, and (iii) the actions which Landlord believes that Tenant must take to eliminate such Tenant Delay, and Tenant has failed to correct the Tenant Delay specified in the Tenant Delay Notice within forty-eight (48) hours following receipt of the Tenant Delay Notice (unless, if such Tenant Delay cannot be cured within said forty-eight (48) hours, Tenant has taken steps within said forty-eight (48) hours to correct the Tenant Delay, and diligently completes the same in a reasonable period).  No period of time prior to the expiration of the cure period shall be included in the period of time charged to Tenant pursuant to such Tenant Delay Notice.

 

(3)                                 Punchlist Items.  Promptly following delivery of the Expansion Premises to Tenant with Landlord’s Expansion Premises Work Substantially Complete, Landlord shall provide Tenant with a list (the “Punchlist”) of outstanding items (the “Punchlist Items”) which (a) need to be performed to complete Landlord’s Expansion Premise Work, and (b) do not materially impair Tenant’s ability to commence Tenant’s Work, as hereinafter defined.  Subject to Force Majeure and Tenant Delays, Landlord shall, unless otherwise specified on the Punchlist, complete all Punchlist Items within sixty (60) days of the date of the Punchlist.

 

E.                                     Tenant’s Work.

 

(1)                                 Tenant’s Plans.  In connection with the performance of the work necessary to prepare the Expansion Premises for Tenant’s occupancy and business operations, including without limitation, the work set forth in Exhibit B, Third Amendment, and the installation of all furniture and fixtures and/or any improvements or alterations Tenant desires to make in the Expansion Premises or the Existing Premises (collectively, “Tenant’s Work”), Tenant shall submit to Landlord for Landlord’s approval pursuant to the provisions of Section 11 of the Lease, (i) the name of and other reasonably requested information regarding Tenant’s proposed architect, HVAC and MEP engineers and general contractor; (ii) a set of design/ development plans sufficient for Landlord to approve Tenant’s proposed design of the Premises (the “Design/ Development Plans”), and (iii) a full set of construction drawings (“Final Construction Drawings”) for Tenant’s Work.  The Design/ Development Plans and the Final Construction Drawings are collectively referred to herein as the “Plans.”  Landlord’s approval of the architect, HVAC and MEP engineers and general contractor shall not be unreasonably withheld, conditioned or delayed.  In addition, Landlord shall have the right to require its written approval, which shall not be unreasonably withheld, conditioned, or delayed, of any subcontractors performing any work affecting the structural elements of, or any of the utility or building service equipment or systems in, the Building.  Landlord’s approval of the Design/Development Plans (and the Final Construction Drawings, provided that the Final Construction Drawings are consistent with the Design/Development Plans), shall not be unreasonably withheld, conditioned or delayed provided the Plans comply with the requirements to avoid aesthetic or other conflicts with the design and function of the balance of the Building and the Property.  Landlord’s approval is solely given for the benefit of Landlord and Tenant under this paragraph, and neither

 

5



 

Tenant nor any third party shall have the right to rely upon Landlord’s approval of the Plans for any other purpose whatsoever.  Landlord agrees to respond to any request for approval of the Plans within five (5) business days after receipt thereof.  Landlord hereby approves the conceptual plans with respect to the Expansion Premises as set forth on the attached Exhibit C, and hereby confirms that subject to Landlord’s approval, in accordance with Section 11 of the Lease, of the Final Construction Drawings for Tenant’s Work, Landlord approves said conceptual plans.  Tenant shall have no obligation to remove any Tenant’s Work shown on said conceptual plans; provided, however, that:  (x) Tenant shall, on or before the expiration of the Lease Term, be required to remove all of Tenant’s furniture (including workstations), fixtures, equipment, and personal property from the Premises; except that Tenant may elect to leave in place the snap-in glass conference room and (y) with respect to any future Alterations made to the Premises, the removal of same shall be governed by Section 11.3 of the Lease.

 

(2)                                 Tenant’s Work.  Except for Landlord’s Contribution, as hereinafter defined, Tenant’s Work shall be performed at Tenant’s sole cost and expense.  Notwithstanding anything to the contrary contained in the Lease, Tenant shall be permitted to use its own general contractor and subcontractors to perform Tenant’s Work, which contractors and subcontractors shall be subject to Landlord’s prior approval, which shall not be unreasonably withheld, conditioned or delayed.  Tenant shall, as part of Tenant’s Work, incur at least $40.00 per rentable square foot in Hard Costs, as hereinafter defined, for leasehold improvements in the Expansion Premises.

 

(3)                                 Landlord Delay.  A “Landlord Delay” shall be defined as any act or omission by Landlord or any employee, agent, representative, consultant, contractor or subcontractor of Landlord which causes an actual delay in the completion of Tenant’s Work.  Notwithstanding the foregoing, no event shall be deemed to be a Landlord Delay until and unless Tenant has given Landlord written notice (the “Landlord Delay Notice”) advising Landlord (i) that a Landlord Delay is occurring, (ii) of the basis on which Tenant has determined that a Landlord Delay is occurring, and (iii) the actions which Tenant believes that Landlord must take to eliminate such Landlord Delay, and Landlord has failed to correct the Landlord Delay specified in the Landlord Delay Notice within forty-eight (48) hours following receipt of the Landlord Delay Notice (unless, if such Landlord Delay cannot be cured within said forty-eight (48) hours, Landlord has taken steps within said forty-eight (48) hours to correct the Landlord Delay, and diligently completed the same in a reasonable period).  No period of time prior to expiration of the cure period shall be included in the period of time charged to Landlord pursuant to such Landlord Delay Notice.

 

(4)                                 Cost of Tenant’s Work; Priority of Work.  Except for Landlord’s Contribution (hereinafter defined), all of Tenant’s Work shall be performed at Tenant’s sole cost and expense, and shall be performed in accordance with the provisions of the Lease (including, without limitation, Section 11).

 

F.                                      Landlord’s Contribution.

 

(1)                                 Amount.  Landlord shall, in the manner hereinafter set forth, provide Tenant with up to $196,000.00 (i.e., $80.00 per rentable square foot of the Expansion Premises) (“Landlord’s Maximum Contribution”) to be used to pay for Permitted Costs, as hereinafter

 

6



 

defined, incurred by Tenant in connection with Tenant’s Work.  “Permitted Costs” shall be defined as Hard Costs and Soft Costs, each as hereinafter defined.  “Hard Costs” shall be defined as the cost of acquisition, installation, and performance of leasehold improvements, demolition, and building permits.  “Soft Costs” shall include the costs of furniture (other than any furniture, including without limitation, workstations which Tenant has the obligation to remove from the Premises), fixtures and equipment installed by Tenant in the Expansion Premises and/or Existing Premises, construction management fees, architectural and design fees, and data/telecom cabling.  “Landlord’s Contribution” shall be the lesser of (x) the actual Permitted Costs incurred by Tenant and (y) Landlord’s Maximum Contribution.  Landlord shall receive a construction management fee equal to two percent (2%) of the Hard Costs of Tenant’s Work performed in the Expansion Premises.  Such fee shall be deducted from Landlord’s Maximum Contribution.  For the purposes hereof, Permitted Costs shall not include:  (i) the cost of any furniture, including without limitation, workstations which Tenant has the obligation to remove from the Premises, (ii) the cost of any other property of every kind, nature and description related or arising out of Tenant’s leasehold estate hereunder, which may be in or upon the Premises or the Building, including without limitation telecommunications and computer equipment, artwork, signs, and trade fixtures, except that the cost of fixtures and equipment installed by Tenant in the Expansion Premises and/or Existing Premises shall be included in Soft Costs, (iii) the cost of any fixtures or Alterations that will be removed at the end of the Term, and (iv) any fees paid to Tenant, any Affiliated Entity or Successor.

 

(2)                                 Requisitions.  Subject to paragraph (3) below, Landlord shall pay Landlord’s Proportion (hereinafter defined) of the cost shown on each requisition (hereinafter defined) submitted by Tenant to Landlord within thirty (30) days of submission thereof by Tenant to Landlord until the entirety of Landlord’s Contribution has been exhausted.  “Landlords Proportion” shall be a fraction, the numerator of which is Landlord’s Contribution and the denominator of which is the total contract price for Tenant’s Work for the Premises (as evidenced by reasonably detailed documentation delivered to Landlord with the requisition first submitted by Tenant).  A “requisition” shall mean AIA Documents G-702 and G-703 duly executed and certified by Tenant’s architect and general contractor (accompanied by, without limitation, invoices from Tenant’s contractors, vendors, service providers and consultants (collectively, “Contractors”) and partial lien waivers and subordinations of lien, as specified in M.G.L. Chapter 254, Section 32 (“Lien Waivers”) with respect to the prior month’s requisition, and such other documentation as Landlord or any Mortgagee may reasonably request) showing in reasonable detail the costs of the item in question or of the improvements installed to date in the Premises, accompanied by certifications executed by the Chief Executive Officer, Chief Financial Officer, Chief Operations Officer, or Vice President of Tenant that the amount of the requisition in question does not exceed the cost of the items, services and work covered by such requisition.  Notwithstanding the foregoing, Tenant shall not be required to deliver Lien Waivers at the time of the first requisition, but shall deliver the Lien Waivers and evidence of payment of the first requisition in full within five (5) days following payment of Landlord’s Contribution with respect to such first requisition.  Landlord shall have the right, upon reasonable advance notice to Tenant, to inspect Tenant’s books and records relating to each requisition in order to verify the amount thereof.  Tenant shall submit requisition(s) no more often than monthly.

 

(3)                                 Notwithstanding anything to the contrary herein contained:  (i) Landlord shall have no obligation to advance funds on account of Landlord’s Contribution more than once

 

7



 

per month; (ii) if Tenant fails to pay to Tenant’s contractors the amounts paid by Landlord to Tenant in connection with any previous requisition(s), Landlord shall thereafter have the right to have Landlord’s Contribution paid directly to Tenant’s contractors; (iii) Landlord shall have no obligation to pay any portion of Landlord’s Contribution with respect to any requisition submitted after the date (the “Outside Requisition Date”) that is twelve (12) months after the Expansion Date; provided, however, that if Tenant certifies to Landlord that it is engaged in a good faith dispute with any contractor, such Outside Requisition Date shall be extended while such dispute is ongoing, so long as Tenant is diligently prosecuting the resolution of such dispute; (iv) Tenant shall not be entitled to any unused portion of Landlord’s Contribution; and (v) in addition to all other requirements hereof, Landlord’s obligation to pay the final ten percent (10%) of Landlord’s Contribution shall be subject to simultaneous delivery of all Lien Waivers relating to items, services and work performed in connection with Tenant’s Work.

 

(4)                                 Tenant may not use more than $29,400.00 of Landlord’s Contribution to pay for architectural and other design costs.

 

2.                                      PERMITTED USE

 

The Permitted Use for the Expansion Premises shall be general, administrative and executive offices and other customary uses accessory to the foregoing; and for no other purpose.

 

3.                                      PARKING

 

Tenant shall not be entitled to any additional parking spaces with respect to the Expansion Premises.  Without limiting the foregoing, Section 33 of the Lease, as deleted and restated in Section 10 of the First Amendment, shall have no applicability to the Expansion Premises.

 

4.                                      SECURITY DEPOSIT

 

Reference is made to the fact that Landlord is currently holding a Security Deposit in the form of a letter of credit in the amount of $800,000.00 in accordance with the provisions of Section 7.2 of the Lease, as amended by Section 9 of the First Amendment and Section 11 of the Second Amendment.  Landlord shall continue to hold said Security Deposit in the amount of $800,000.00 during the Lease Term, in accordance with the provisions of said Section 7.2 of the Lease, as amended as aforesaid, as security for Tenant’s obligations under the Lease.  Notwithstanding anything to the contrary set forth in Sections 7.2, as amended, in no event shall the Security Deposit in the amount of $800,000.00 be subject to any further reduction during the Lease Term.

 

5.                                      NOTICES

 

From and after the date hereof, Landlord’s notice address set forth in Section 31 of the Lease shall be deleted in its entirety, and the following address shall be substituted therefor:

 

8



 

CRP/King 830 Winter, L.L.C.
c/o King Street Properties

200 CambridgePark Drive

Cambridge, MA 02140

Attention: Stephen D. Lynch
Email: slynch@ks-prop.com

 

With copies to:

 

Goulston & Storrs PC

400 Atlantic Avenue

Boston, MA 02110

Attention: 830 Winter Street

 

6.                                      ADDITIONAL EMERGENCY GENERATOR

 

In addition to Tenant’s use of Tenant’s Generator, as defined in Section 38 of the Lease, Tenant shall have the exclusive right, during the Landlord’s Generator Use Period, as hereinafter defined, to use, in its “as-is”, “where-is” condition, the existing Milton CAT 400 KWH emergency generator, and associated fuel tanks and equipment (collectively, “Landlord’s Generator”) located near the loading dock area to the west of the Building.  Tenant shall, at its own expense, perform any work necessary to connect the generator to Tenant’s existing equipment.  “Landlord’s Generator Use Period” shall commence as of the date that Tenant first commences to use Landlord’s Generator in accordance with the provisions of Section 38 of the Lease and this Section 6 and shall terminate as of the earlier of (x) the expiration or termination of the Term of the Lease, or (y) the date that is sixty (60) days after Tenant provides Landlord with a written termination notice with respect to its use of Landlord’s Generator.  Landlord shall have the right to review and reasonably approve Tenant’s work prior to commencement of construction.  Tenant’s use of Landlord’s Generator shall be on all of the same terms and conditions set forth in Section 38 governing Tenant’s use of Tenant’s Generator, to the extent applicable.  Tenant shall be responsible for insuring Landlord’s Generator as well as for the maintenance and repair thereof throughout the Landlord’s Generator Use Period; however, neither Landlord nor Tenant shall have any obligation to replace Landlord’s Generator.  Without limiting the foregoing, Landlord makes no warranties or representations to Tenant as to the suitability of Landlord’s Generator for Tenant’s use.

 

7.                                      BROKER

 

Tenant and Landlord each warrants and represents that it has dealt with no broker in connection with the consummation of this Third Amendment other than Transwestern (“Landlord’s Broker”) and T3 Advisors (“Tenant’s Broker”).  Tenant and Landlord each agrees to defend, indemnify and save the other harmless from and against any claims arising in breach of the representation and warranty set forth in the immediately preceding sentence.  Landlord shall pay any commission due to Landlord’s Broker pursuant to a separate agreement between Landlord and Landlord’s Broker, and Landlord’s Broker shall pay Tenant’s Broker a leasing commission pursuant to the terms of a separate agreement between Landlord’s Broker and Tenant’s Broker.

 

9



 

8.                                      INAPPLICABLE LEASE PROVISIONS

 

Section 10.1 (Construction) of the Lease; Section 8 and Exhibit C (Additional Construction Allowance) and Exhibit D (Decommission Work) of the First Amendment; and Section 10 and Exhibit A (Third Construction Allowance) of the Second Amendment shall have no applicability with respect to the Expansion Premises and this Third Amendment.

 

9.                                      CONFLICT

 

In the event that any of the provisions of the Lease are inconsistent with this Third Amendment or the state of facts contemplated hereby, the provisions of this Third Amendment shall control.

 

[SIGNATURES ON FOLLOWING PAGE]

 

10



 

EXECUTED under seal as of the date first above written.

 

LANDLORD:

 

CRP/KING 830 WINTER, L.L.C.,

a Delaware limited liability company

 

By:

CRP/King 830 Winter Venture, L.L.C.,

 

a Delaware limited liability company,

 

its sole Member

 

 

 

By:

King Munson LLC,

 

 

a Delaware limited liability company

 

 

a Member

 

 

 

 

By:

King Street Properties Investments LLC,

 

 

 

a Massachusetts limited liability company,

 

 

 

its Manager

 

 

 

By:

/s/ Stephen D. Lynch

 

 

 

Name:

Stephen D. Lynch

 

 

 

Title:

Manager

 

 

TENANT:

 

IMMUNOGEN, INC.,
a Massachusetts corporation

 

By:

/s/ David B. Johnston

 

 

Name:

David B. Johnston

 

 

Title:

CFO

 

 

CONSENT OF MORTGAGE

 

The undersigned hereby consents to the foregoing Third Amendment and agrees that the Subordination Agreement, Acknowledgement of Lease Assignment, Estoppel, Attornment and Non-Disturbance Agreement dated July 20, 2015, among the parties remains in full force and effect with respect to the Lease, as amended by the foregoing Third Amendment.

 

 

WELLS FARGO BANK, NATIONAL ASSOCIATION

 

 

 

 

 

By:

/s/ Douglas S. Novitch

 

 

Name:

Douglas S. Novich

 

 

Title:

SVP

 

11



 

EXHIBIT A, THIRD AMENDMENT

 

EXPANSION PREMISES

 

See attached.

 



 

EXHIBIT B, THIRD AMENDMENT

 

LANDLORD/TENANT RESPONSIBILITY MATRIX

 

See attached.

 



 

EXHIBIT C, THIRD AMENDMENT

 

CONCEPTUAL PLANS

 

See attached.

 




EXHIBIT 31.1

 

CERTIFICATIONS

 

I, Daniel Junius, certify that:

 

1.                                      I have reviewed this quarterly report on Form 10-Q of ImmunoGen, Inc.;

 

2.                                      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.                                      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.                                      The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)                                     designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)                                     designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted principles;

 

c)                                      evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)                                     disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.                                      The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)                                     all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)                                     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: February 4, 2016

 

/s/ Daniel M. Junius

 

Daniel M. Junius

 

President, Chief Executive Officer (Principal
Executive Officer)

 

 




EXHIBIT 31.2

 

CERTIFICATIONS

 

I, David B. Johnston, certify that:

 

1.                                      I have reviewed this quarterly report on Form 10-Q of ImmunoGen, Inc.;

 

2.                                      Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.                                      Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4.                                      The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)                                     designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)                                     designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted principles;

 

c)                                      evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)                                     disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.                                      The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)                                     all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)                                     any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: February 4, 2016

 

/s/ David B. Johnston

 

David B. Johnston

 

Executive Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)

 

 




EXHIBIT 32

 

Certification

 

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

 

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of ImmunoGen, Inc., a Massachusetts corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:

 

The Quarterly Report for the period ended December 31, 2015 (the “Form 10-Q”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: February 4, 2016

/s/ DANIEL M. JUNIUS

 

Daniel M. Junius

 

President, Chief Executive Officer

 

(Principal Executive Officer)

 

 

Dated: February 4, 2016

/s/ DAVID B. JOHNSTON

 

David B. Johnston

 

Executive Vice President, Chief Financial Officer

 

(Principal Financial and Accounting Officer)

 




v3.3.1.900
Document and Entity Information - shares
6 Months Ended
Dec. 31, 2015
Jan. 29, 2016
Document and Entity Information    
Entity Registrant Name IMMUNOGEN INC  
Entity Central Index Key 0000855654  
Document Type 10-Q  
Document Period End Date Dec. 31, 2015  
Amendment Flag false  
Current Fiscal Year End Date --06-30  
Entity Current Reporting Status Yes  
Entity Filer Category Large Accelerated Filer  
Entity Common Stock, Shares Outstanding   87,060,869
Document Fiscal Year Focus 2016  
Document Fiscal Period Focus Q2  


v3.3.1.900
CONSOLIDATED BALANCE SHEETS - USD ($)
$ in Thousands
Dec. 31, 2015
Jun. 30, 2015
ASSETS    
Cash and cash equivalents $ 212,283 $ 278,109
Accounts receivable 803 5,088
Unbilled revenue 885 714
Inventory 1,537 2,935
Current portion of deferred financing costs 1,120 1,159
Prepaid and other current assets 6,618 4,175
Total current assets 223,246 292,180
Property and equipment, net of accumulated depreciation 21,518 16,254
Deferred financing costs, net of current portion 3,874 4,415
Other assets 2,942 974
Total assets 251,580 313,823
LIABILITIES AND SHAREHOLDERS' EQUITY    
Accounts payable 13,404 8,138
Accrued compensation 5,455 8,346
Other accrued liabilities 7,718 10,441
Current portion of deferred lease incentive 646 646
Current portion of liability related to the sale of future royalties 15,132 7,906
Current portion of deferred revenue 1,545 333
Total current liabilities 43,900 35,810
Deferred lease incentive, net of current portion 5,978 6,301
Deferred revenue, net of current portion 32,041 40,855
Liability related to the sale of future royalties, net of current portion 182,176 191,756
Other long-term liabilities 4,171 3,997
Total liabilities $ 268,266 $ 278,719
Commitments and contingencies (Note E)
Shareholders' equity:    
Preferred stock, $0.01 par value; authorized 5,000 shares; no shares issued and outstanding
Common stock, $0.01 par value; authorized 150,000 shares; issued and outstanding 87,040 and 86,579 shares as of December 31, 2015 and June 30, 2015, respectively $ 870 $ 866
Additional paid-in capital 758,281 743,108
Accumulated deficit (775,837) (708,870)
Total shareholders' equity (16,686) 35,104
Total liabilities and shareholders' equity $ 251,580 $ 313,823


v3.3.1.900
CONSOLIDATED BALANCE SHEETS (Parenthetical) - $ / shares
shares in Thousands
Dec. 31, 2015
Jun. 30, 2015
CONSOLIDATED BALANCE SHEETS    
Preferred stock, par value (in dollars per share) $ 0.01 $ 0.01
Preferred stock, authorized shares 5,000 5,000
Preferred stock, shares issued 0 0
Preferred stock, shares outstanding 0 0
Common stock, par value (in dollars per share) $ 0.01 $ 0.01
Common stock, authorized shares 150,000 150,000
Common stock, issued shares 87,040 86,579
Common stock, outstanding shares 87,040 86,579


v3.3.1.900
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS - USD ($)
shares in Thousands, $ in Thousands
3 Months Ended 6 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2014
Revenues:        
License and milestone fees $ 10,692 $ 41,417 $ 16,762 $ 47,651
Royalty revenue 195 4,625 195 8,791
Non-cash royalty revenue related to the sale of future royalties 6,291   11,975  
Research and development support 848 832 1,620 1,608
Clinical materials revenue 3 1,426 2,328 3,453
Total revenues 18,029 48,300 32,880 61,503
Operating Expenses:        
Research and development 38,199 27,647 73,331 55,665
General and administrative 8,054 6,872 16,383 13,967
Total operating expenses 46,253 34,519 89,714 69,632
(Loss) income from operations (28,224) 13,781 (56,834) (8,129)
Investment income, net 60 14 111 22
Non-cash interest expense on liability related to the sale of future royalties (5,059)   (10,202)  
Other expense, net (4) (160) (42) (540)
Net (loss) income $ (33,227) $ 13,635 $ (66,967) $ (8,647)
Basic and diluted net (loss) income per common share (in dollars per share) $ (0.38) $ 0.16 $ (0.77) $ (0.10)
Basic weighted average common shares outstanding (in shares) 86,970 85,935 86,904 85,904
Dilutive impact of potential common shares (in shares)   730    
Diluted weighted average common shares outstanding (in shares) 86,970 86,665 86,904 85,904
Total comprehensive (loss) income $ (33,227) $ 13,635 $ (66,967) $ (8,647)


v3.3.1.900
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)
$ in Thousands
6 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Cash flows from operating activities:    
Net loss $ (66,967) $ (8,647)
Adjustments to reconcile net loss to net cash used for operating activities:    
Non-cash royalty revenue related to sale of future royalties (11,975)  
Non-cash interest expense on liability related to sale of future royalties 10,202  
Depreciation and amortization 2,387 2,818
Gain on sale/disposal of fixed assets (26) (7)
Stock and deferred share unit compensation 10,385 9,102
Deferred rent 56 127
Change in operating assets and liabilities:    
Accounts receivable 4,285 (1,213)
Unbilled revenue (171) 751
Inventory 1,398 1,031
Prepaid and other current assets (2,443) 167
Other assets (1,968) 164
Accounts payable 3,174 794
Accrued compensation (2,891) (2,186)
Other accrued liabilities (3,334) 708
Deferred revenue (7,602) (39,259)
Proceeds from landlord for tenant improvements   1,267
Net cash used for operating activities (65,490) (34,383)
Cash flows from investing activities:    
Purchases of property and equipment (5,127) (2,590)
Net cash used for investing activities (5,127) (2,590)
Cash flows from financing activities:    
Proceeds from stock options exercised 4,791 1,316
Net cash provided by financing activities 4,791 1,316
Net change in cash and cash equivalents (65,826) (35,657)
Cash and cash equivalents, beginning balance 278,109 142,261
Cash and cash equivalents, ending balance $ 212,283 $ 106,604


v3.3.1.900
Summary of Significant Accounting Policies
6 Months Ended
Dec. 31, 2015
Summary of Significant Accounting Policies  
Summary of Significant Accounting Policies

 

A.Summary of Significant Accounting Policies

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements at December 31, 2015 and June 30, 2015 and for the three and six months ended December 30, 2015 and 2014 include the accounts of ImmunoGen, Inc., or the Company, and its wholly owned subsidiaries, ImmunoGen Securities Corp., ImmunoGen Europe Limited and Hurricane, LLC. The consolidated financial statements include all of the adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair presentation of the Company’s financial position in accordance with accounting principles generally accepted in the U.S. for interim financial information. The June 30, 2015 condensed consolidated balance sheet data presented for comparative purposes was derived from our audited financial statements but certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. The preparation of interim financial statements requires the use of management’s estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim financial statements and the reported amounts of revenues and expenditures during the reported periods. The results of the interim periods are not necessarily indicative of the results for the entire year. Accordingly, the interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2015.

 

Subsequent Events

 

The Company has evaluated all events or transactions that occurred after December 31, 2015 up through the date the Company issued these financial statements. In January 2016, Bayer initiated a Phase II clinical study designed to support registration of its ADC product candidate, anetumab ravtansine, triggering a $10 million development milestone payment to the Company. The Company did not have any other material recognizable or unrecognizable subsequent events during this period.

 

Revenue Recognition

 

The Company enters into licensing and development agreements with collaborative partners for the development of monoclonal antibody-based anticancer therapeutics. The terms of these agreements contain multiple deliverables which may include (i) licenses, or options to obtain licenses, to the Company’s antibody-drug conjugate, or ADC, technology, (ii) rights to future technological improvements, (iii) research activities to be performed on behalf of the collaborative partner, (iv) delivery of cytotoxic agents and (v) the manufacture of preclinical or clinical materials for the collaborative partner. Payments to the Company under these agreements may include upfront fees, option fees, exercise fees, payments for research activities, payments for the manufacture of preclinical or clinical materials, payments based upon the achievement of certain milestones and royalties on product sales. The Company follows the provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 605-25, “Revenue Recognition—Multiple-Element Arrangements,” and ASC Topic 605-28, “Revenue Recognition-Milestone Method,” in accounting for these agreements. In order to account for these agreements, the Company must identify the deliverables included within the agreement and evaluate which deliverables represent separate units of accounting based on if certain criteria are met, including whether the delivered element has stand-alone value to the collaborator. The consideration received is allocated among the separate units of accounting, and the applicable revenue recognition criteria are applied to each of the separate units.

 

At December 31, 2015, the Company had the following two types of agreements with the parties identified below:

 

Development and commercialization licenses, which provide the party with the right to use the Company’s ADC technology and/or certain other intellectual property to develop compounds to a specified antigen target:

 

Amgen (four exclusive single-target licenses(1))

 

Bayer (one exclusive single-target license)

 

Biotest (one exclusive single-target license)

 

Lilly (three exclusive single-target licenses)

 

(1) Amgen has sublicensed one of its exclusive single-target licenses to Oxford BioTherapeutics Ltd.

 

Novartis (five exclusive single-target licenses and one license to two related targets: one target on an exclusive basis and the second target on a non-exclusive basis)

 

Roche, through its Genentech unit (five exclusive single-target licenses)

 

Sanofi (one exclusive single-target license and one exclusive license to multiple individual targets)

 

Takeda, through its wholly owned subsidiary, Millennium Pharmaceuticals, Inc. (one exclusive single-target license)

 

Research license/option agreement for a defined period of time to secure development and commercialization licenses to use the Company’s ADC technology to develop anticancer compounds to specified targets on established terms (referred to herein as right-to-test agreements):

 

Sanofi

 

CytomX

 

Takeda

 

There are no performance, cancellation, termination or refund provisions in any of the arrangements that contain material financial consequences to the Company.

 

Development and Commercialization Licenses

 

The deliverables under a development and commercialization license agreement generally include the license to the Company’s ADC technology with respect to a specified antigen target, and may also include deliverables related to rights to future technological improvements, research activities to be performed on behalf of the collaborative partner and the manufacture of preclinical or clinical materials for the collaborative partner.

 

Generally, development and commercialization licenses contain non-refundable terms for payments and, depending on the terms of the agreement, provide that the Company will (i) at the collaborator’s request, provide research services at negotiated prices which are generally consistent with what other third parties would charge, (ii) at the collaborator’s request, manufacture and provide to it preclinical and clinical materials or deliver cytotoxic agents at negotiated prices which are generally consistent with what other third parties would charge, (iii) earn payments upon the achievement of certain milestones and (iv) earn royalty payments, generally until the later of the last applicable patent expiration or 10 to 12 years after product launch. In the case of Kadcyla, however, the minimum royalty term is 10 years and the maximum royalty term is 12 years on a country by country basis, regardless of patent protection.  Royalty rates may vary over the royalty term depending on the Company’s intellectual property rights and/or the presence of comparable competing products. The Company may provide technical assistance and share any technology improvements with its collaborators during the term of the collaboration agreements. The Company does not directly control when or whether any collaborator will request research or manufacturing services, achieve milestones or become liable for royalty payments. As a result, the Company cannot predict when or if it will recognize revenues in connection with any of the foregoing.

 

In determining the units of accounting, management evaluates whether the license has stand-alone value from the undelivered elements to the collaborative partner based on the consideration of the relevant facts and circumstances for each arrangement. Factors considered in this determination include the research capabilities of the partner and the availability of ADC technology research expertise in the general marketplace. If the Company concludes that the license has stand-alone value and therefore will be accounted for as a separate unit of accounting, the Company then determines the estimated selling prices of the license and all other units of accounting based on market conditions, similar arrangements entered into by third parties, and entity-specific factors such as the terms of the Company’s previous collaborative agreements, recent preclinical and clinical testing results of therapeutic products that use the Company’s ADC technology, the Company’s pricing practices and pricing objectives, the likelihood that technological improvements will be made, and, if made, will be used by the Company’s collaborators and the nature of the research services to be performed on behalf of its collaborators and market rates for similar services.

 

Upfront payments on development and commercialization licenses are deferred if facts and circumstances dictate that the license does not have stand-alone value. Prior to the adoption of Accounting Standards Update (ASU) No. 2009-13, “Revenue Arrangements with Multiple Deliverables” on July 1, 2010, the Company determined that its licenses lacked stand-alone value and were combined with other elements of the arrangement and any amounts associated with the license were deferred and amortized over a certain period, which the Company refers to as the Company’s period of substantial involvement. The determination of the length of the period over which to defer revenue is subject to judgment and estimation and can have an impact on the amount of revenue recognized in a given period. Historically the Company’s involvement with the development of a collaborator’s product candidate has been significant at the early stages of development, and lessens as it progresses into clinical trials. Also, as a drug candidate gets closer to commencing pivotal testing the Company’s collaborators have sought an alternative site to manufacture their products, as the Company’s facility does not produce pivotal or commercial drug product. Accordingly, the Company generally estimates this period of substantial involvement to begin at the inception of the collaboration agreement and conclude at the end of non-pivotal Phase II testing. The Company believes this period of substantial involvement is, depending on the nature of the license, on average six and one-half years. Quarterly, the Company reassesses its periods of substantial involvement over which the Company amortizes its upfront license fees and makes adjustments as appropriate. In the event a collaborator elects to discontinue development of a specific product candidate under a development and commercialization license, but retains its right to use the Company’s technology to develop an alternative product candidate to the same target or a target substitute, the Company would cease amortization of any remaining portion of the upfront fee until there is substantial preclinical activity on another product candidate and its remaining period of substantial involvement can be estimated. In the event that a development and commercialization license were to be terminated, the Company would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue, but was classified as deferred revenue, at the date of such termination.

 

Subsequent to the adoption of ASU No. 2009-13, the Company determined that its research licenses lack stand-alone value and are considered for aggregation with the other elements of the arrangement and accounted for as one unit of accounting.

 

Upfront payments on development and commercialization licenses may be recognized upon delivery of the license if facts and circumstances dictate that the license has stand-alone value from the undelivered elements, which generally include rights to future technological improvements, research services, delivery of cytotoxic agents and the manufacture of preclinical and clinical materials.

 

The Company recognizes revenue related to research services that represent separate units of accounting as they are performed, as long as there is persuasive evidence of an arrangement, the fee is fixed or determinable, and collection of the related receivable is probable. The Company recognizes revenue related to the rights to future technological improvements over the estimated term of the applicable license.

 

The Company may also provide cytotoxic agents to its collaborators or produce preclinical and clinical materials at negotiated prices which are generally consistent with what other third parties would charge. The Company recognizes revenue on cytotoxic agents and on preclinical and clinical materials when the materials have passed all quality testing required for collaborator acceptance and title and risk of loss have transferred to the collaborator. Arrangement consideration allocated to the manufacture of preclinical and clinical materials in a multiple-deliverable arrangement is below the Company’s full cost, and the Company’s full cost is not expected to ever be below its contract selling prices for its existing collaborations. During each of the six months ended December 31, 2015 and 2014, the difference between the Company’s full cost to manufacture preclinical and clinical materials on behalf of its collaborators as compared to total amounts received from collaborators for the manufacture of preclinical and clinical materials was $5.5 million. The majority of the Company’s costs to produce these preclinical and clinical materials are fixed and then allocated to each batch based on the number of batches produced during the period. Therefore, the Company’s costs to produce these materials are significantly impacted by the number of batches produced during the period. The volume of preclinical and clinical materials the Company produces is directly related to the number of clinical trials the Company and its collaborators are preparing for or currently have underway, the speed of enrollment in those trials, the dosage schedule of each clinical trial and the time period such trials last. Accordingly, the volume of preclinical and clinical materials produced, and therefore the Company’s per-batch costs to manufacture these preclinical and clinical materials, may vary significantly from period to period.

 

The Company may also produce research material for potential collaborators under material transfer agreements. Additionally, the Company performs research activities, including developing antibody specific conjugation processes, on behalf of its collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development. The Company records amounts received for research materials produced or services performed as a component of research and development support revenue. The Company also develops conjugation processes for materials for later-stage testing and commercialization for certain collaborators. The Company is compensated at negotiated rates and may receive milestone payments for developing these processes which are recorded as a component of research and development support revenue.

 

The Company’s development and commercialization license agreements have milestone payments which for reporting purposes are aggregated into three categories: (i) development milestones, (ii) regulatory milestones, and (iii) sales milestones. Development milestones are typically payable when a product candidate initiates or advances into different clinical trial phases. Regulatory milestones are typically payable upon submission for marketing approval with the U.S. Food and Drug Administration, or FDA, or other countries’ regulatory authorities or on receipt of actual marketing approvals for the compound or for additional indications. Sales milestones are typically payable when annual sales reach certain levels.

 

At the inception of each agreement that includes milestone payments, the Company evaluates whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone. This evaluation includes an assessment of whether (a) the consideration is commensurate with either (1) the entity’s performance to achieve the milestone, or (2) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity’s performance to achieve the milestone, (b) the consideration relates solely to past performance and (c) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. The Company evaluates factors such as the scientific, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required to achieve the respective milestone and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment.

 

Non-refundable development and regulatory milestones that are expected to be achieved as a result of the Company’s efforts during the period of substantial involvement are considered substantive and are recognized as revenue upon the achievement of the milestone, assuming all other revenue recognition criteria are met. Milestones that are not considered substantive because the Company does not contribute effort to the achievement of such milestones are generally achieved after the period of substantial involvement and are recognized as revenue upon achievement of the milestone, as there are no undelivered elements remaining and no continuing performance obligations, assuming all other revenue recognition criteria are met.

 

Under the Company’s development and commercialization license agreements, the Company receives royalty payments based upon its licensees’ net sales of covered products. Generally, under these agreements the Company is to receive royalty reports and payments from its licensees approximately one quarter in arrears, that is, generally in the third month of the quarter after the licensee has sold the royalty-bearing product or products. The Company recognizes royalty revenues when it can reliably estimate such amounts and collectability is reasonably assured. As such, the Company generally recognizes royalty revenues in the quarter reported to the Company by its licensees, or one quarter following the quarter in which sales by the Company’s licensees occurred.

 

Right-to-Test Agreements

 

The Company’s right-to-test agreements provide collaborators the right to (a) test the Company’s ADC technology for a defined period of time through a research, or right-to-test, license, (b) take options, for a defined period of time, to specified targets and (c) upon exercise of those options, secure or “take” licenses to develop and commercialize products for the specified targets on established terms. Under these agreements, fees may be due to the Company (i) at the inception of the arrangement (referred to as “upfront” fees or payments), (ii) upon taking an option with respect to a specific target (referred to as option fees or payments earned, if any, when the option is “taken”), (iii) upon the exercise of a previously taken option to acquire a development and commercialization license(s) (referred to as exercise fees or payments earned, if any, when the development and commercialization license is “taken”), or (iv) some combination of all of these fees.

 

The accounting for right-to-test agreements is dependent on the nature of the options granted to the collaborative partner. Options are considered substantive if, at the inception of a right-to-test agreement, the Company is at risk as to whether the collaborative partner will choose to exercise the options to secure development and commercialization licenses. Factors that are considered in evaluating whether options are substantive include the overall objective of the arrangement, the benefit the collaborator might obtain from the agreement without exercising the options, the cost to exercise the options relative to the total upfront consideration, and the additional financial commitments or economic penalties imposed on the collaborator as a result of exercising the options.

 

For right-to-test agreements where the options to secure development and commercialization licenses to the Company’s ADC technology are considered substantive, the Company does not consider the development and commercialization licenses to be a deliverable at the inception of the agreement. For those right-to-test agreements entered into prior to the adoption of ASU No. 2009-13 where the options to secure development and commercialization licenses are considered substantive, the Company has deferred the upfront payments received and recognizes this revenue over the period during which the collaborator could elect to take options for development and commercialization licenses. These periods are specific to each collaboration agreement. If a collaborator takes an option to acquire a development and commercialization license under these agreements, any substantive option fee is deferred and recognized over the life of the option, generally 12 to 18 months. If a collaborator exercises an option and takes a development and commercialization license to a specific target, the Company attributes the exercise fee to the development and commercialization license. Upon exercise of an option to acquire a development and commercialization license, the Company would also attribute any remaining deferred option fee to the development and commercialization license and apply the multiple-element revenue recognition criteria to the development and commercialization license and any other deliverables to determine the appropriate revenue recognition, which will be consistent with the Company’s accounting policy for upfront payments on single-target licenses. In the event a right-to-test agreement were to be terminated, the Company would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue, but was classified as deferred revenue, at the date of such termination. None of the Company’s right-to-test agreements entered into subsequent to the adoption of ASU No. 2009-13 has been determined to contain substantive options.

 

For right-to-test agreements where the options to secure development and commercialization licenses to the Company’s ADC technology are not considered substantive, the Company considers the development and commercialization licenses to be a deliverable at the inception of the agreement and applies the multiple-element revenue recognition criteria to determine the appropriate revenue recognition. None of the Company’s right-to-test agreements entered into prior to the adoption of ASU No. 2009-13 has been determined to contain non-substantive options.

 

The Company does not directly control when or if any collaborator will exercise its options for development and commercialization licenses. As a result, the Company cannot predict when or if it will recognize revenues in connection with any of the foregoing.

 

Financial Instruments and Concentration of Credit Risk

 

Cash and cash equivalents are primarily maintained with three financial institutions in the U.S. Deposits with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk. The Company’s cash equivalents consist of money market funds with underlying investments primarily being U.S. Government issued securities and high quality, short term commercial paper. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and marketable securities. The Company held no marketable securities as of December 31, 2015 and June 30, 2015. The Company’s investment policy, approved by the Board of Directors, limits the amount it may invest in any one type of investment, thereby reducing credit risk concentrations.

 

Cash and Cash Equivalents

 

All highly liquid financial instruments with maturities of three months or less when purchased are considered cash equivalents. As of December 31, 2015 and June 30, 2015, the Company held $212.3 million and $278.1 million, respectively, in cash and money market funds consisting principally of U.S. Government-issued securities and high quality, short-term commercial paper which were classified as cash and cash equivalents.

 

Non-cash Investing Activities

 

The Company had $2.5 million of accrued capital expenditures as of December 31, 2015 which have been treated as a non-cash investing activity and, accordingly, are not reflected in the consolidated statement of cash flows.  Accrued capital expenditures as of December 31, 2014 were not material and are included in the consolidated statement of cash flows.

 

Fair Value of Financial Instruments

 

Fair value is defined under ASC Topic 820, “Fair Value Measurements and Disclosures,” as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.  The standard describes a fair value hierarchy to measure fair value which is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

 

·

Level 1 - Quoted prices in active markets for identical assets or liabilities.

 

·

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

·

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

As of December 31, 2015, the Company held certain assets that are required to be measured at fair value on a recurring basis.  The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of December 31, 2015 (in thousands):

 

 

 

Fair Value Measurements at December 31, 2015 Using

 

 

 

 

 

Quoted Prices in
Active Markets for
Identical Assets

 

Significant Other
Observable Inputs

 

Significant
Unobservable
Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Cash equivalents

 

$

193,209 

 

$

193,209 

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2015, the Company held certain assets that are required to be measured at fair value on a recurring basis. The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of June 30, 2015 (in thousands):

 

 

 

Fair Value Measurements at June 30, 2015 Using

 

 

 

 

 

Quoted Prices in
Active Markets for
Identical Assets

 

Significant Other
Observable Inputs

 

Significant
Unobservable
Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Cash equivalents

 

$

269,304 

 

$

269,304 

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The fair value of the Company’s cash equivalents is based on quoted prices from active markets.

 

Unbilled Revenue

 

The majority of the Company’s unbilled revenue at December 31, 2015 and June 30, 2015 represents research funding earned prior to those dates based on actual resources utilized under the Company’s agreements with various collaborators.

 

Inventory

 

Inventory costs relate to clinical trial materials being manufactured for sale to the Company’s collaborators. Inventory is stated at the lower of cost or market as determined on a first-in, first-out (FIFO) basis.

 

Inventory at December 31, 2015 and June 30, 2015 is summarized below (in thousands):

 

 

 

December 31,
2015

 

June 30,
2015

 

 

 

 

 

 

 

Raw materials

 

$

367 

 

$

279 

 

Work in process

 

1,170 

 

2,656 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

1,537 

 

$

2,935 

 

 

 

 

 

 

 

 

 

 

Raw materials inventory consists entirely of DM1 and DM4, proprietary cell-killing agents the Company developed as part of its ADC technology. The Company considers more than a twelve month supply of raw materials that is not supported by firm, fixed orders and/or projections from its collaborators to be excess and establishes a reserve to reduce to zero the value of any such excess raw material inventory with a corresponding charge to research and development expense. In accordance with this policy, the Company recorded $966,000 of expense related to excess inventory during the three and six-months ended December 31, 2015 compared to $55,000 and $392,000 of expense related to excess inventory  recorded during the three and six month periods ended December 31, 2014, respectively.

 

Work in process inventory consists of conjugate manufactured for sale to the Company’s collaborators to be used in preclinical and clinical studies.  All conjugate is made to order at the request of the collaborators and subject to the terms and conditions of respective supply agreements.  As such, no reserve for work in process inventory is required.

 

Computation of Net Loss per Common Share

 

Basic and diluted net loss per share is calculated based upon the weighted average number of common shares outstanding during the period. During periods of income, participating securities are allocated a proportional share of income determined by dividing total weighted average participating securities by the sum of the total weighted average common shares and participating securities (the “two-class method”). Shares of the Company’s restricted stock participate in any dividends declared by the Company and are therefore considered to be participating securities. Participating securities have the effect of diluting both basic and diluted earnings per share during periods of income. During periods of loss, no loss is allocated to participating securities since they have no contractual obligation to share in the losses of the Company. The impact of applying the two-class method was not material. Diluted (loss) income per share is computed after giving consideration to the dilutive effect of stock options and restricted stock that are outstanding during the period, except where such non-participating securities would be anti-dilutive.

 

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

Options outstanding to purchase common stock and unvested restricted stock

 

11,668

 

10,241

 

11,668

 

10,241

 

 

 

 

 

 

 

 

 

 

 

Common stock equivalents under treasury stock method

 

990

 

730

 

1,139

 

969

 

 

Potentially dilutive securities representing 7.9 and 7.1 million shares of common stock for the three and six-month periods ended December 31, 2014, respectively, were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive. The Company’s common stock equivalents have not been included in any net loss per share calculation because their effect is anti-dilutive due to the Company’s net loss position.

 

Stock-Based Compensation

 

As of December 31, 2015, the Company is authorized to grant future awards under one employee share-based compensation plan, which is the ImmunoGen, Inc. 2006 Employee, Director and Consultant Equity Incentive Plan, or the 2006 Plan. At the annual meeting of shareholders on November 11, 2014, an amendment to the 2006 Plan was approved and an additional 5,500,000 shares were authorized for issuance under this plan.  As amended, the 2006 Plan provides for the issuance of Stock Grants, the grant of Options and the grant of Stock-Based Awards for up to 17,500,000 shares of the Company’s common stock, as well as 1,676,599 shares of common stock which represent awards granted under the previous stock option plan, the ImmunoGen, Inc. Restated Stock Option Plan, or the Former Plan, that were forfeited, expired or were cancelled without delivery of shares of common stock or which resulted in the forfeiture of shares of common stock back to the Company between November 11, 2006 and June 30, 2014. Option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Options vest at various periods of up to four years and may be exercised within ten years of the date of grant.

 

The stock-based awards are accounted for under ASC Topic 718, “Compensation—Stock Compensation.” Pursuant to Topic 718, the estimated grant date fair value of awards is charged to the statement of operations and comprehensive loss over the requisite service period, which is the vesting period. Such amounts have been reduced by an estimate of forfeitures of all unvested awards. The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the assumptions noted in the following table. As the Company has not paid dividends since inception, nor does it expect to pay any dividends for the foreseeable future, the expected dividend yield assumption is zero. Expected volatility is based exclusively on historical volatility data of the Company’s stock. The expected term of stock options granted is based exclusively on historical data and represents the period of time that stock options granted are expected to be outstanding. The expected term is calculated for and applied to one group of stock options as the Company does not expect substantially different exercise or post-vesting termination behavior among its option recipients. The risk-free rate of the stock options is based on the U.S. Treasury rate in effect at the time of grant for the expected term of the stock options.

 

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

Dividend

 

None

 

None

 

None

 

None

 

Volatility

 

65.20%

 

60.95%

 

66.86%

 

60.87%

 

Risk-free interest rate

 

1.67%

 

1.81%

 

1.86%

 

1.88%

 

Expected life (years)

 

6.3

 

6.3

 

6.3

 

6.3

 

 

Using the Black-Scholes option-pricing model, the weighted average grant date fair values of options granted during the three months ended December 31, 2015 and 2014 were $7.49 and $5.77 per share, respectively, and $9.99 and $6.24 per share for options granted during the six months ended December 31, 2015 and 2014, respectively.

 

Stock compensation expense related to stock options and restricted stock awards granted under the 2006 Plan was $4.5 million and $10.2 million during the three and six months ended December 31, 2015, respectively, compared to stock compensation expense of $3.6 million and $8.9 million for the three and six months ended December 31, 2014, respectively. As of December 31, 2015, the estimated fair value of unvested employee awards was $32.8 million, net of estimated forfeitures. The weighted-average remaining vesting period for these awards is approximately two years.

 

During the six months ended December 31, 2015, holders of options issued under the Company’s equity plans exercised their rights to acquire an aggregate of approximately 461,000 shares of common stock at prices ranging from $3.19 to $17.00 per share.  The total proceeds to the Company from these option exercises were approximately $4.8 million.

 

Segment Information

 

During the six months ended December 31, 2015, the Company continued to operate in one operating segment which is the business of discovery of monoclonal antibody-based anticancer therapeutics.

 

The percentages of revenues recognized from significant customers of the Company in the three and six months ended December 31, 2015 and 2014 are included in the following table:

 

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

Collaborative Partner:

 

2015

 

2014

 

2015

 

2014

 

Lilly

 

1%

 

35%

 

16%

 

28%

 

Novartis

 

1%

 

54%

 

1%

 

44%

 

Roche

 

36%

 

10%

 

37%

 

14%

 

Sanofi

 

11%

 

—%

 

6%

 

10%

 

Takeda

 

49%

 

—%

 

28%

 

—%

 

 

There were no other customers of the Company with significant revenues in the three and six months ended December 31, 2015 and 2014.

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued Accounting Standards Update 2014-9, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), to clarify the principles for recognizing revenue. This update provides a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The original effective date would have required the Company to adopt beginning in its first quarter of fiscal 2018. In July 2015, the FASB voted to amend ASU 2014-09 by approving a one-year deferral of the effective date as well as providing the option to early adopt the standard on the original effective date.  Accordingly, the Company may adopt the standard in either its first quarter of fiscal 2018 or 2019. The new revenue standard allows for either full retrospective or modified retrospective application. The Company is currently evaluating the timing of its adoption, the transition method to apply and the impact that this guidance will have on its consolidated financial statements and related disclosures.

 

In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This new standard gives a company’s management the final responsibilities to decide whether there’s substantial doubt about the company’s ability to continue as a going concern and to provide related footnote disclosures. The standard provides guidance to management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that companies commonly provide in their footnotes. Under the new standard, management must decide whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the company’s ability to continue as a going concern within one year after the date that the financial statements are issued, or within one year after the date that the financial statements are available to be issued when applicable. This guidance is effective for annual reporting beginning after December 15, 2016, including interim periods within the year of adoption, with early application permitted. Accordingly, the standard is effective for the Company on July 1, 2017. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

In April 2015, the FASB issued Accounting Standards Update 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. To simplify presentation of debt issuance costs, this new standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  The recognition and measurement guidance for debt issuance costs are not affected by this update.  This guidance is effective for annual reporting beginning after December 15, 2015, including interim periods within the year of adoption, and calls for retrospective application, with early application permitted. Accordingly, the standard is effective for the Company on July 1, 2016. The Company’s consolidated balance sheet as of December 31, 2015 includes in assets $5 million of debt issuance costs classified as deferred financing costs.

 

In July 2015, the FASB issued Accounting Standards Update 2015-11, Simplifying the Measurement of Inventory (Topic 330). To simplify the principles for subsequent measurement of inventory, this new standard requires inventory measured using any method other than LIFO or the retail method shall be measured at the lower of cost and net realizable value, rather than lower of cost or market. This guidance is effective for annual reporting beginning after December 15, 2016, including interim periods within the year of adoption, and calls for prospective application, with early application permitted. Accordingly, the standard is effective for the Company on July 1, 2017. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

In November 2015, the FASB issued Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740). To simplify the presentation of deferred income taxes, the amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position.  This guidance is effective for annual reporting beginning after December 15, 2016, including interim periods within the year of adoption, with early application permitted. The Company implemented the recommendations of this Update prospectively, resulting in a reduction of long-term assets and current liabilities of approximately $843,000 as of December 31, 2015. The prior period balances were not retrospectively adjusted.

 

In January 2016, the FASB issued Accounting Standards Update 2016-1, Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825). The amendments in this Update supersede the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and require equity securities (including other ownership interests, such as partnerships, unincorporated joint ventures, and limited liability companies) to be measured at fair value with changes in the fair value recognized through net income.  The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. The amendments also require enhanced disclosures about those investments. The amendments improve financial reporting by providing relevant information about an entity’s equity investments and reducing the number of items that are recognized in other comprehensive income.  This guidance is effective for annual reporting beginning after December 15, 2017, including interim periods within the year of adoption, and calls for prospective application, with early application permitted. Accordingly, the standard is effective for the Company on July 1, 2018. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 



v3.3.1.900
Collaborative Agreements
6 Months Ended
Dec. 31, 2015
Collaborative Agreements  
Collaborative Agreements

 

B.Collaborative Agreements

 

Roche

 

In May 2000, the Company granted Genentech, now a unit of Roche, an exclusive license to use the Company’s maytansinoid ADC technology with antibodies, such as trastuzumab, or other proteins that target HER2. Pursuant to this agreement, Roche developed and received marketing approval for its HER2-targeting ADC compound, Kadcyla, in the U.S., Europe, Japan and numerous other countries. The Company receives royalty reports and payments related to sales of Kadcyla from Roche one quarter in arrears. In accordance with the Company’s revenue recognition policy, $12 million of non-cash royalties on net sales of Kadcyla for the six-month period ended September 30, 2015 were recorded and included in revenue for the six months ended December 31, 2015 and $8.8 million of royalties on net sales of Kadcyla for the six-month period ended September 30, 2014 were included in royalty revenue for the six months ended December 31, 2014. In April 2015, the Company consummated a royalty purchase transaction — see Note C below for further details. Included in the three and six months ended December 31, 2015 is $195,000 of cash royalties resulting from an adjustment recorded in the current period related to net sales of Kadcyla  prior to the effective date of the royalty purchase transaction.

 

Amgen

 

Under a now-expired right-to-test agreement, in September 2009, November 2009 and December 2012, Amgen took three exclusive development and commercialization licenses, for which the Company received an exercise fee of $1 million for each license taken. In May 2013, Amgen took one non-exclusive development and commercialization license, for which the Company received an exercise fee of $500,000. In October 2013, the non-exclusive license was amended and converted to an exclusive license, for which Amgen paid an additional $500,000 fee to the Company. Amgen has sublicensed its rights under this license to Oxford BioTherapeutics Ltd. In December 2015, Amgen advised the Company that it had discontinued development of two product candidates, AMG 595 and AMG 172 that had been covered by two of Amgen’s four exclusive licenses. For the two remaining development and commercialization licenses taken, the Company is entitled to receive up to a total of $34 million in milestone payments, plus royalties on the commercial sales of any resulting products. The total milestones per license are categorized as follows: development milestones—$9 million; regulatory milestones—$20 million; and sales milestones—$5 million. Amgen (or its sublicensee(s)) is responsible for the manufacturing, product development and marketing of any products resulting from these development and commercialization licenses.

 

In September 2015, the IND application for its third ADC product candidate became effective, triggering a $1 million milestone payment to the Company which is included in license and milestone fee revenue for the six months ended December 31, 2015. The next potential milestone the Company will be entitled to receive under this license will be a development milestone for the first dosing of a patient in a Phase II clinical trial, which will result in a $3 million payment being due. The next potential milestone the Company will be entitled to receive under the May 2013 license will be a $1 million development milestone for an IND becoming effective. At the time of execution of each of these development and commercialization licenses, there was significant uncertainty as to whether these milestones would be achieved. In consideration of this, as well as the Company’s past involvement in the research and manufacturing of these product candidates, these milestones were deemed substantive.

 

Sanofi

 

In July 2003, the Company entered into a broad collaboration agreement with Sanofi (formerly Aventis) to discover, develop and commercialize antibody-based products. The collaboration agreement provides Sanofi with worldwide development and commercialization rights to new antibody-based products directed to targets that are included in the collaboration, including the exclusive right to use the Company’s maytansinoid ADC technology in the creation of products developed to these targets. The product candidates (targets) as of December 31, 2015 in the collaboration include isatuximab (CD38), SAR566658 (CA6), SAR408701 (CEACAM5) and one earlier-stage compound that has yet to be disclosed.

 

We are entitled to receive milestone payments potentially totaling $21.5 million, per target, plus royalties on the commercial sales of any resulting products. The total milestones are categorized as follows: development milestones—$7.5 million; and regulatory milestones—$14 million. Through December 31, 2015, the Company has received and recognized an aggregate of $20.5 million in milestone payments for compounds covered under this agreement now or in the past, including a $3 million development milestone related to initiation of a Phase IIb clinical trial (as defined in the agreement) for isatuximab and a $1 million development milestone related to initiation of a Phase I clinical trial for SAR408701 which are included in license and milestone fee revenue for the six months ended December 31, 2014. The next potential milestone the Company will be entitled to receive for each of SAR566658 and SAR408701 will be a development milestone for initiation of a Phase IIb clinical trial (as defined in the agreement), which will result in each case in a $3 million payment being due. The next potential milestone the Company will be entitled to receive with respect to isatuximab will be a development milestone for initiation of a Phase III clinical trial, which will result in a $3 million payment being due. The next potential milestone the Company will be entitled to receive for the unidentified target will be a development milestone for commencement of a Phase I clinical trial, which will result in a $1 million payment being due. At the time of execution of this agreement, there was significant uncertainty as to whether these milestones would be achieved. In consideration of this, as well as the Company’s past involvement in the research and manufacturing of these product candidates, these milestones were deemed substantive.

 

In December 2006, we entered into a right-to-test agreement with Sanofi. The agreement provides Sanofi with the right to (a) test the Company’s maytansinoid ADC technology with Sanofi’s antibodies to targets under a right-to-test, or research, license, (b) take exclusive options, with certain restrictions, to specified targets for specified option periods and (c) upon exercise of those options, take exclusive licenses to use the Company’s maytansinoid ADC technology to develop and commercialize products directed to the specified targets on terms agreed upon at the inception of the right-to-test agreement. Sanofi no longer has the right to take additional options under the agreement, although multiple outstanding options remain in effect for the remainder of their respective option periods. For each development and commercialization license taken, the Company is entitled to receive an exercise fee of $2 million and up to a total of $30 million in milestone payments, plus royalties on the commercial sales of any resulting products. The total milestones are categorized as follows: development milestones—$10 million; and regulatory milestones—$20 million.

 

In December 2013, Sanofi took its first exclusive development and commercialization license under the right-to-test agreement, for which the Company received an exercise fee of $2 million and was recognizing this amount as revenue ratably over the Company’s estimated period of its substantial involvement. The Company had previously estimated this development period would conclude at the end of non-pivotal Phase II testing.  During the first quarter of fiscal 2014, the Company determined it will not be substantially involved in the development and commercialization of the product based on Sanofi’s current plans to develop and manufacture the product without the Company’s assistance. As a result of this determination, we recognized the balance of the upfront exercise fee during the prior period.  This change in estimate resulted in an increase to license and milestone fees of $1.7 million for the six months ended December 31, 2014 compared to amounts that would have been recognized pursuant to the Company’s previous estimate.

 

Pursuant to the license agreement noted above, in October 2015, Sanofi initiated Phase I, first-in-human clinical testing of its ADC product candidate, SAR428926 (LAMP1), triggering a $2 million development milestone payment to the Company which is included in license and milestone fee revenue for the three and six months ended December 31, 2015. The next milestone payment the Company could receive would be a $4 million development milestone for commencement of a Phase IIb clinical trial (as defined in the agreement) under this license. At the time of execution of this agreement, there was significant uncertainty as to whether these milestones would be achieved. In consideration of this, as well as the Company’s past involvement in the research and manufacturing of Sanofi’s product candidates, these milestones were deemed substantive.

 

Bayer

 

In October 2008, the Company granted Bayer an exclusive development and commercialization license to the Company’s ADC technology for use with antibodies or other proteins that target mesothelin. The Company received a $4 million upfront payment upon execution of the agreement, and—for each compound developed and marketed by Bayer under this collaboration—the Company is entitled to receive a total of $170.5 million in milestone payments, plus royalties on the commercial sales of any resulting products. The total milestones are categorized as follows: development milestones—$16 million; regulatory milestones—$44.5 million; and sales milestones—$110 million. Through December 31, 2015, the Company has received and recognized an aggregate of $3 million in milestone payments under this agreement. In January 2016, Bayer initiated a Phase II clinical study designed to support registration of its ADC product candidate, anetumab ravtansine, triggering a $10 million milestone payment being due to the Company. At the time of execution of this agreement, there was significant uncertainty as to whether these received and recognized milestones would be achieved. In consideration of this, as well as the Company’s past involvement in the research and supply of cytotoxic agent for this product candidate, these milestones were deemed substantive. The next potential milestone the Company will be entitled to receive will be either a $2 million development milestone for commencement of a pivotal clinical trial for a second indication for anetumab ravtansine or a $6 million regulatory milestone for filing of regulatory approval for its first indication for anetumab ravtansine. At the time of execution of this agreement, there was significant uncertainty as to whether these milestones would be achieved. In consideration of this, as well as the Company’s past involvement in the research and supply of cytotoxic agent for this product candidate, these milestones were deemed substantive.

 

Lilly

 

Eli Lilly and Company (Lilly) had the right to take three exclusive development and commercialization licenses under a right-to-test agreement established in December 2011, and took these licenses prior to the expiration of the agreement in December 2014. The Company received a $20 million upfront payment in connection with the execution of the right-to-test agreement in 2011.  Under the terms of this right-to-test agreement, the first license had no associated exercise fee, and the second and third licenses each had a $2 million exercise fee. The first development and commercialization license was taken in August 2013 and the agreement was amended in December 2013 to provide Lilly with an extension provision and retrospectively include a $2 million exercise fee for the first license in lieu of the fee due for either the second or third license. The second and third licenses were taken in December 2014, with one including the $2 million exercise fee and the other not. Upon execution of the two licenses in December 2014, the Company recognized the remaining $15.6 million of the $23.5 million of arrangement consideration allocated to the development and commercialization licenses, which is included in license and milestone fee revenue for the three and six months ended December 31, 2014. Under the two licenses with the $2 million exercise fee, the Company is entitled to receive up to a total of $199 million in milestone payments, plus royalties on the commercial sales of any resulting products.  Under the license taken in December 2014 without the exercise fee, the Company is entitled to receive up to a total of $200.5 million in milestone payments, plus royalties on the commercial sales of any resulting products. The total milestones are categorized as follows: development milestones—$29 million for the two development and commercialization licenses with the $2 million exercise fee, and $30.5 million for the one development and commercialization license with no exercise fee; regulatory milestones—$70 million in all cases; and sales milestones—$100 million in all cases.

 

In September 2015, Lilly initiated Phase I, first-in-human clinical testing of its ADC product candidate, LY3076226, triggering a $5 million milestone payment to the Company which is included in license and milestone fee revenue for the six months ended December 31, 2015.  The next payment the Company could receive would be either a $9 million milestone for commencement of a Phase II clinical trial under this license or a $5 million development milestone payment with the commencement of a Phase I clinical trial under either of its other two licenses.  At the time of execution of this agreement, there was significant uncertainty as to whether these milestones would be achieved. In consideration of this, as well as the Company’s expected involvement in the research and manufacturing of these product candidates, these milestones were deemed substantive. The Company also is entitled to receive payments for delivery of cytotoxic agents to Lilly and research and development activities performed on behalf of Lilly. Lilly is responsible for the manufacturing, product development and marketing of any products resulting from this collaboration.

 

Takeda

 

In March 2015, the Company entered into a right-to-test agreement with Takeda Pharmaceutical Company Limited (Takeda) through its wholly owned subsidiary, Millennium Pharmaceuticals, Inc.  The agreement provides Takeda with the right to (a) take exclusive options, with certain restrictions, to individual targets selected by Takeda for specified option periods, (b) test the Company’s ADC technology with Takeda’s antibodies directed to the targets optioned under a right-to-test, or research, license, and (c)  take exclusive licenses to use the Company’s ADC technology to develop and commercialize products to targets optioned for up to two individual targets on terms specified in the right-to-test agreement.  The Company received a $20 million upfront payment in connection with the execution of the right-to-test agreement. Takeda must exercise its options for the development and commercialization licenses by the end of the three-year term of the right-to-test agreement, after which any then outstanding options will lapse.  Takeda has the right to extend the three-year right-to-test period for one additional year by payment to the Company of $4 million.  Alternatively, Takeda has the right to expand the scope of the right-to-test agreement by payment to the Company of $8 million.  If Takeda opts to expand the scope of the right-to-test agreement, it will be entitled to take additional exclusive options, one of which may be exercised for an additional development and commercialization license, and the right-to test period will be extended until the fifth anniversary of the effective date of the right-to-test agreement. The first exclusive license was taken by Takeda in December 2015, and as a result, the Company recognized $8.6 million of the $25.9 million of arrangement consideration allocated to the development and commercialization licenses, which is included in license and milestone fee revenue for the three and six months ended December 31, 2015. Takeda is responsible for the manufacturing, product development and marketing of any products resulting from this collaboration.

 

For each development and commercialization license taken, the Company is entitled to receive up to a total of $210 million in milestone payments, plus royalties on the commercial sales of any resulting products. The total milestones are categorized as follows: development milestones—$30 million; regulatory milestones—$85 million; and sales milestones—$95 million. The first potential milestone the Company will be entitled to receive will be a $5 million development milestone payment with the initiation of a Phase I clinical trial under the first development and commercialization license taken. At the time of execution of this agreement, there was significant uncertainty as to whether the milestone related to initiation of a Phase I clinical trial under the first development and commercialization license would be achieved. In consideration of this, as well as the Company’s expected involvement in the research and manufacturing of these product candidates, this milestone was deemed substantive. The Company also is entitled to receive payments for delivery of cytotoxic agents to Takeda and research and development activities performed on behalf of Takeda.

 

For additional information related to these agreements, as well as the Company’s other significant collaborative agreements, please read Note C, Agreements to our consolidated financial statements included within the Company’s 2015 Form 10-K.



v3.3.1.900
Liability Related to Sale of Future Royalties
6 Months Ended
Dec. 31, 2015
Liabilitiy Related to Sale of Future Royalties  
Liability Related to Sale of Future Royalties

 

C.Liability Related to Sale of Future Royalties

 

In April 2015, Immunity Royalty Holdings, L.P. (IRH) purchased the right to receive 100% of the royalty payments on commercial sales of Kadcyla subsequent to December 31, 2014, arising under the Company’s development and commercialization license with Genentech, until IRH has received aggregate royalties equal to $235 million or $260 million, depending on when the aggregate royalties received by IRH reach a specified milestone.  Once the applicable threshold is met, if ever, the Company will thereafter receive 85% and IRH will receive 15% of the Kadcyla royalties for the remaining royalty term.  At consummation of the transaction in April 2015, the Company received cash proceeds of $200 million.  As part of this sale, the Company incurred $5.9 million of transaction costs, which are presented in the accompanying consolidated balance sheet as deferred financing costs and will be amortized to interest expense over the estimated life of the royalty purchase agreement.  Although the Company sold its rights to receive royalties from the sales of Kadcyla, as a result of its ongoing involvement in the cash flows related to these royalties, the Company will continue to account for these royalties as revenue and recorded the $200 million in proceeds from this transaction as a liability related to sale of future royalties (Royalty Obligation) that will be amortized using the interest method over the estimated life of the royalty purchase agreement.

 

The following table shows the activity within the liability account during the six-month period ended December 31, 2015 (in thousands):

 

 

 

Period from
June 30, 2015 to
December 31,
2015

 

Liability related to sale of future royalties — beginning balance

 

$

199,662

 

Non-cash Kadcyla royalty revenue

 

(11,975

)

Non-cash interest expense recognized

 

9,621

 

 

 

 

 

 

 

 

 

Liability related to sale of future royalties — ending balance

 

$

197,308

 

 

 

 

 

 

 

As royalties are remitted to IRH, the balance of the Royalty Obligation will be effectively repaid over the life of the agreement.  In order to determine the amortization of the Royalty Obligation, the Company is required to estimate the total amount of future royalty payments to be received and remitted to IRH as noted above over the life of the agreement. The sum of these amounts less the $200 million proceeds the Company received will be recorded as interest expense over the life of the Royalty Obligation. Since inception, the Company’s estimate of this total interest expense resulted in an effective annual interest rate of 9.7%. The Company periodically assesses the estimated royalty payments to IRH and to the extent such payments are greater or less than its initial estimates, or the timing of such payments is materially different than its original estimates, the Company will prospectively adjust the amortization of the Royalty Obligation. There are a number of factors that could materially affect the amount and timing of royalty payments from Genentech, most of which are not within the Company’s control. Such factors include, but are not limited to, changing standards of care, the introduction of competing products, manufacturing or other delays, biosimilar competition, patent protection, adverse events that result in governmental health authority imposed restrictions on the use of the drug products, significant changes in foreign exchange rates as the royalties remitted to IRH are made in U.S. dollars (USD) while significant portions of the underlying sales of Kadcyla are made in currencies other than USD, and other events or circumstances that could result in reduced royalty payments from Kadcyla, all of which would result in a reduction of non-cash royalty revenues and the non-cash interest expense over the life of the Royalty Obligation. Conversely, if sales of Kadcyla are more than expected, the non-cash royalty revenues and the non-cash interest expense recorded by the Company would be greater over the term of the Royalty Obligation.

 

In addition, the royalty purchase agreement grants IRH the right to receive certain reports and other information relating to the royalties and contains other representations and warranties, covenants and indemnification obligations that are customary for a transaction of this nature.



v3.3.1.900
Capital Stock
6 Months Ended
Dec. 31, 2015
Capital Stock  
Capital Stock

 

D.Capital Stock

 

2001 Non-Employee Director Stock Plan

 

During the three and six months ended December 31, 2015, the Company recorded approximately $25,000 of expense and $(5,000) in expense reduction related to stock units outstanding under the Company’s 2001 Non-Employee Director Stock Plan, or the 2001 Plan, compared to $(29,000) and $(37,000) in expense reduction recorded during the three and six months ended December 31, 2014. The value of the stock units are classified as a liability and adjusted to market value at each reporting period as the redemption amount of stock units for this plan will be paid in cash.  No stock units have been issued under the 2001 Plan subsequent to June 30, 2004.

 

Compensation Policy for Non-Employee Directors

 

On November 12, 2013, the Board amended the Compensation Policy for Non-Employee Directors to make certain changes to the compensation of its non-employee directors, including an increase in the fees paid in cash to the non-employee directors. Under the terms of the amended policy, the redemption amount of deferred share units issued will continue to be paid in shares of common stock of the Company on the date a director ceases to be a member of the Board. Annual retainers vest quarterly over approximately one year from the date of grant, contingent upon the individual remaining a director of ImmunoGen as of each vesting date.  The number of deferred share units awarded is now fixed per the plan on the date of the award and is no longer based on the market price of the Company’s common stock on the date of the award. All unvested deferred stock awards will automatically vest immediately prior to the occurrence of a change of control.

 

In addition to the deferred share units, the Non-Employee Directors are also entitled to receive a fixed number of stock options determined using the Black-Scholes option pricing model measured on the date of grant, which would be the date of the annual meeting of shareholders.  These options vest quarterly over approximately one year from the date of grant.  Any new directors will receive a pro-rated award, depending on their date of election to the Board.  The directors received a total of 80,000 stock options in November of 2015 and 2014, respectively, and the related compensation expense for the three and six months ended December 31, 2015 and 2014 is included in the amounts discussed in the “Stock-Based Compensation” section of footnote A above.

 

During the three and six months ended December 31, 2015, the Company recorded approximately $82,000 and $164,000 in compensation expense, respectively, related to deferred share units issued and outstanding under the Company’s Compensation Policy for Non-Employee Directors, compared to $118,000 and $236,000 in compensation expense recorded during the three and six months ended December 31, 2014.



v3.3.1.900
Commitments and Contingencies
6 Months Ended
Dec. 31, 2015
Commitments and Contingencies  
Commitments and Contingencies

 

 

E.Commitments and Contingencies

 

Leases

 

The Company currently has a lease agreement with CRP/King 830 Winter L.L.C. for the rental of approximately 110,000 square feet of laboratory and office space at 830 Winter Street, Waltham, MA through March 2026. The Company uses this space for its corporate headquarters and other operations.  The Company may extend the lease for two additional terms of five years.  Pursuant to lease amendments executed in December 2013 and April 2014, the Company received construction allowances of approximately $746,000 and $1.1 million, respectively, to build out office and lab space to the Company’s specifications, and will receive up to $196,000 as a construction allowance pursuant to an amendment executed in December 2015.  The Company is required to pay certain operating expenses for the leased premises subject to escalation charges for certain expense increases over a base amount.

 

The Company also leases manufacturing and office space at 333 Providence Highway, Norwood, MA under an agreement through 2018 with an option to extend the lease for an additional term of five years. The Company is required to pay certain operating expenses for the leased premises subject to escalation charges for certain expense increases over a base amount.

 

Effective April 2013, the Company entered into a lease agreement with River Ridge Limited Partnership for the rental of 7,507 square feet of additional office space at 100 River Ridge Drive, Norwood, MA. The initial term of the lease is for five years and two months commencing in July 2013 with an option for the Company to extend the lease for an additional term of five years. The Company is required to pay certain operating expenses for the leased premises subject to escalation charges for certain expense increases over a base amount. The Company entered into a sublease in December 2014 for this space, effective from January 2015 through July 2018.

 

The minimum rental commitments for the Company’s facilities, including real estate taxes and other expenses, for the next five fiscal years and thereafter under the non-cancelable operating lease agreements discussed above are as follows (in thousands):

 

2016 (six months remaining)

 

$

3,702

 

2017

 

7,444

 

2018

 

7,553

 

2019

 

6,745

 

2020

 

6,730

 

Thereafter

 

40,690

 

 

 

 

 

Total minimum lease payments

 

$

72,864

 

Total minimum rental payments from sublease

 

(310

)

 

 

 

 

Total minimum lease payments, net

 

$

72,554

 

 

 

 

 

 

 

There are no obligations under capital leases as of December 31, 2015, as all of the capital leases were single payment obligations which have all been made.

 

Collaborations

 

The Company is contractually obligated to make potential future success-based development, regulatory or sales milestone payments in conjunction with certain collaborative agreements. These payments are contingent upon the occurrence of certain future events and, given the nature of these events, it is unclear when, if ever, the Company may be required to pay such amounts. Further, the timing of any future payment is not reasonably estimable. As of December 31, 2015, the maximum amount that may be payable in the future under the Company’s current collaborative agreements is $162 million, $1.4 million of which is reimbursable by a third party under a separate agreement.

 



v3.3.1.900
Summary of Significant Accounting Policies (Policies)
6 Months Ended
Dec. 31, 2015
Summary of Significant Accounting Policies  
Basis of Presentation

 

Basis of Presentation

 

The accompanying unaudited consolidated financial statements at December 31, 2015 and June 30, 2015 and for the three and six months ended December 30, 2015 and 2014 include the accounts of ImmunoGen, Inc., or the Company, and its wholly owned subsidiaries, ImmunoGen Securities Corp., ImmunoGen Europe Limited and Hurricane, LLC. The consolidated financial statements include all of the adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair presentation of the Company’s financial position in accordance with accounting principles generally accepted in the U.S. for interim financial information. The June 30, 2015 condensed consolidated balance sheet data presented for comparative purposes was derived from our audited financial statements but certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. The preparation of interim financial statements requires the use of management’s estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim financial statements and the reported amounts of revenues and expenditures during the reported periods. The results of the interim periods are not necessarily indicative of the results for the entire year. Accordingly, the interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended June 30, 2015.

Subsequent Events

 

Subsequent Events

 

The Company has evaluated all events or transactions that occurred after December 31, 2015 up through the date the Company issued these financial statements. In January 2016, Bayer initiated a Phase II clinical study designed to support registration of its ADC product candidate, anetumab ravtansine, triggering a $10 million development milestone payment to the Company. The Company did not have any other material recognizable or unrecognizable subsequent events during this period.

Revenue Recognition

 

Revenue Recognition

 

The Company enters into licensing and development agreements with collaborative partners for the development of monoclonal antibody-based anticancer therapeutics. The terms of these agreements contain multiple deliverables which may include (i) licenses, or options to obtain licenses, to the Company’s antibody-drug conjugate, or ADC, technology, (ii) rights to future technological improvements, (iii) research activities to be performed on behalf of the collaborative partner, (iv) delivery of cytotoxic agents and (v) the manufacture of preclinical or clinical materials for the collaborative partner. Payments to the Company under these agreements may include upfront fees, option fees, exercise fees, payments for research activities, payments for the manufacture of preclinical or clinical materials, payments based upon the achievement of certain milestones and royalties on product sales. The Company follows the provisions of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 605-25, “Revenue Recognition—Multiple-Element Arrangements,” and ASC Topic 605-28, “Revenue Recognition-Milestone Method,” in accounting for these agreements. In order to account for these agreements, the Company must identify the deliverables included within the agreement and evaluate which deliverables represent separate units of accounting based on if certain criteria are met, including whether the delivered element has stand-alone value to the collaborator. The consideration received is allocated among the separate units of accounting, and the applicable revenue recognition criteria are applied to each of the separate units.

 

At December 31, 2015, the Company had the following two types of agreements with the parties identified below:

 

Development and commercialization licenses, which provide the party with the right to use the Company’s ADC technology and/or certain other intellectual property to develop compounds to a specified antigen target:

 

Amgen (four exclusive single-target licenses(1))

 

Bayer (one exclusive single-target license)

 

Biotest (one exclusive single-target license)

 

Lilly (three exclusive single-target licenses)

 

(1) Amgen has sublicensed one of its exclusive single-target licenses to Oxford BioTherapeutics Ltd.

 

Novartis (five exclusive single-target licenses and one license to two related targets: one target on an exclusive basis and the second target on a non-exclusive basis)

 

Roche, through its Genentech unit (five exclusive single-target licenses)

 

Sanofi (one exclusive single-target license and one exclusive license to multiple individual targets)

 

Takeda, through its wholly owned subsidiary, Millennium Pharmaceuticals, Inc. (one exclusive single-target license)

 

Research license/option agreement for a defined period of time to secure development and commercialization licenses to use the Company’s ADC technology to develop anticancer compounds to specified targets on established terms (referred to herein as right-to-test agreements):

 

Sanofi

 

CytomX

 

Takeda

 

There are no performance, cancellation, termination or refund provisions in any of the arrangements that contain material financial consequences to the Company.

 

Development and Commercialization Licenses

 

The deliverables under a development and commercialization license agreement generally include the license to the Company’s ADC technology with respect to a specified antigen target, and may also include deliverables related to rights to future technological improvements, research activities to be performed on behalf of the collaborative partner and the manufacture of preclinical or clinical materials for the collaborative partner.

 

Generally, development and commercialization licenses contain non-refundable terms for payments and, depending on the terms of the agreement, provide that the Company will (i) at the collaborator’s request, provide research services at negotiated prices which are generally consistent with what other third parties would charge, (ii) at the collaborator’s request, manufacture and provide to it preclinical and clinical materials or deliver cytotoxic agents at negotiated prices which are generally consistent with what other third parties would charge, (iii) earn payments upon the achievement of certain milestones and (iv) earn royalty payments, generally until the later of the last applicable patent expiration or 10 to 12 years after product launch. In the case of Kadcyla, however, the minimum royalty term is 10 years and the maximum royalty term is 12 years on a country by country basis, regardless of patent protection.  Royalty rates may vary over the royalty term depending on the Company’s intellectual property rights and/or the presence of comparable competing products. The Company may provide technical assistance and share any technology improvements with its collaborators during the term of the collaboration agreements. The Company does not directly control when or whether any collaborator will request research or manufacturing services, achieve milestones or become liable for royalty payments. As a result, the Company cannot predict when or if it will recognize revenues in connection with any of the foregoing.

 

In determining the units of accounting, management evaluates whether the license has stand-alone value from the undelivered elements to the collaborative partner based on the consideration of the relevant facts and circumstances for each arrangement. Factors considered in this determination include the research capabilities of the partner and the availability of ADC technology research expertise in the general marketplace. If the Company concludes that the license has stand-alone value and therefore will be accounted for as a separate unit of accounting, the Company then determines the estimated selling prices of the license and all other units of accounting based on market conditions, similar arrangements entered into by third parties, and entity-specific factors such as the terms of the Company’s previous collaborative agreements, recent preclinical and clinical testing results of therapeutic products that use the Company’s ADC technology, the Company’s pricing practices and pricing objectives, the likelihood that technological improvements will be made, and, if made, will be used by the Company’s collaborators and the nature of the research services to be performed on behalf of its collaborators and market rates for similar services.

 

Upfront payments on development and commercialization licenses are deferred if facts and circumstances dictate that the license does not have stand-alone value. Prior to the adoption of Accounting Standards Update (ASU) No. 2009-13, “Revenue Arrangements with Multiple Deliverables” on July 1, 2010, the Company determined that its licenses lacked stand-alone value and were combined with other elements of the arrangement and any amounts associated with the license were deferred and amortized over a certain period, which the Company refers to as the Company’s period of substantial involvement. The determination of the length of the period over which to defer revenue is subject to judgment and estimation and can have an impact on the amount of revenue recognized in a given period. Historically the Company’s involvement with the development of a collaborator’s product candidate has been significant at the early stages of development, and lessens as it progresses into clinical trials. Also, as a drug candidate gets closer to commencing pivotal testing the Company’s collaborators have sought an alternative site to manufacture their products, as the Company’s facility does not produce pivotal or commercial drug product. Accordingly, the Company generally estimates this period of substantial involvement to begin at the inception of the collaboration agreement and conclude at the end of non-pivotal Phase II testing. The Company believes this period of substantial involvement is, depending on the nature of the license, on average six and one-half years. Quarterly, the Company reassesses its periods of substantial involvement over which the Company amortizes its upfront license fees and makes adjustments as appropriate. In the event a collaborator elects to discontinue development of a specific product candidate under a development and commercialization license, but retains its right to use the Company’s technology to develop an alternative product candidate to the same target or a target substitute, the Company would cease amortization of any remaining portion of the upfront fee until there is substantial preclinical activity on another product candidate and its remaining period of substantial involvement can be estimated. In the event that a development and commercialization license were to be terminated, the Company would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue, but was classified as deferred revenue, at the date of such termination.

 

Subsequent to the adoption of ASU No. 2009-13, the Company determined that its research licenses lack stand-alone value and are considered for aggregation with the other elements of the arrangement and accounted for as one unit of accounting.

 

Upfront payments on development and commercialization licenses may be recognized upon delivery of the license if facts and circumstances dictate that the license has stand-alone value from the undelivered elements, which generally include rights to future technological improvements, research services, delivery of cytotoxic agents and the manufacture of preclinical and clinical materials.

 

The Company recognizes revenue related to research services that represent separate units of accounting as they are performed, as long as there is persuasive evidence of an arrangement, the fee is fixed or determinable, and collection of the related receivable is probable. The Company recognizes revenue related to the rights to future technological improvements over the estimated term of the applicable license.

 

The Company may also provide cytotoxic agents to its collaborators or produce preclinical and clinical materials at negotiated prices which are generally consistent with what other third parties would charge. The Company recognizes revenue on cytotoxic agents and on preclinical and clinical materials when the materials have passed all quality testing required for collaborator acceptance and title and risk of loss have transferred to the collaborator. Arrangement consideration allocated to the manufacture of preclinical and clinical materials in a multiple-deliverable arrangement is below the Company’s full cost, and the Company’s full cost is not expected to ever be below its contract selling prices for its existing collaborations. During each of the six months ended December 31, 2015 and 2014, the difference between the Company’s full cost to manufacture preclinical and clinical materials on behalf of its collaborators as compared to total amounts received from collaborators for the manufacture of preclinical and clinical materials was $5.5 million. The majority of the Company’s costs to produce these preclinical and clinical materials are fixed and then allocated to each batch based on the number of batches produced during the period. Therefore, the Company’s costs to produce these materials are significantly impacted by the number of batches produced during the period. The volume of preclinical and clinical materials the Company produces is directly related to the number of clinical trials the Company and its collaborators are preparing for or currently have underway, the speed of enrollment in those trials, the dosage schedule of each clinical trial and the time period such trials last. Accordingly, the volume of preclinical and clinical materials produced, and therefore the Company’s per-batch costs to manufacture these preclinical and clinical materials, may vary significantly from period to period.

 

The Company may also produce research material for potential collaborators under material transfer agreements. Additionally, the Company performs research activities, including developing antibody specific conjugation processes, on behalf of its collaborators and potential collaborators during the early evaluation and preclinical testing stages of drug development. The Company records amounts received for research materials produced or services performed as a component of research and development support revenue. The Company also develops conjugation processes for materials for later-stage testing and commercialization for certain collaborators. The Company is compensated at negotiated rates and may receive milestone payments for developing these processes which are recorded as a component of research and development support revenue.

 

The Company’s development and commercialization license agreements have milestone payments which for reporting purposes are aggregated into three categories: (i) development milestones, (ii) regulatory milestones, and (iii) sales milestones. Development milestones are typically payable when a product candidate initiates or advances into different clinical trial phases. Regulatory milestones are typically payable upon submission for marketing approval with the U.S. Food and Drug Administration, or FDA, or other countries’ regulatory authorities or on receipt of actual marketing approvals for the compound or for additional indications. Sales milestones are typically payable when annual sales reach certain levels.

 

At the inception of each agreement that includes milestone payments, the Company evaluates whether each milestone is substantive and at risk to both parties on the basis of the contingent nature of the milestone. This evaluation includes an assessment of whether (a) the consideration is commensurate with either (1) the entity’s performance to achieve the milestone, or (2) the enhancement of the value of the delivered item(s) as a result of a specific outcome resulting from the entity’s performance to achieve the milestone, (b) the consideration relates solely to past performance and (c) the consideration is reasonable relative to all of the deliverables and payment terms within the arrangement. The Company evaluates factors such as the scientific, regulatory, commercial and other risks that must be overcome to achieve the respective milestone, the level of effort and investment required to achieve the respective milestone and whether the milestone consideration is reasonable relative to all deliverables and payment terms in the arrangement in making this assessment.

 

Non-refundable development and regulatory milestones that are expected to be achieved as a result of the Company’s efforts during the period of substantial involvement are considered substantive and are recognized as revenue upon the achievement of the milestone, assuming all other revenue recognition criteria are met. Milestones that are not considered substantive because the Company does not contribute effort to the achievement of such milestones are generally achieved after the period of substantial involvement and are recognized as revenue upon achievement of the milestone, as there are no undelivered elements remaining and no continuing performance obligations, assuming all other revenue recognition criteria are met.

 

Under the Company’s development and commercialization license agreements, the Company receives royalty payments based upon its licensees’ net sales of covered products. Generally, under these agreements the Company is to receive royalty reports and payments from its licensees approximately one quarter in arrears, that is, generally in the third month of the quarter after the licensee has sold the royalty-bearing product or products. The Company recognizes royalty revenues when it can reliably estimate such amounts and collectability is reasonably assured. As such, the Company generally recognizes royalty revenues in the quarter reported to the Company by its licensees, or one quarter following the quarter in which sales by the Company’s licensees occurred.

 

Right-to-Test Agreements

 

The Company’s right-to-test agreements provide collaborators the right to (a) test the Company’s ADC technology for a defined period of time through a research, or right-to-test, license, (b) take options, for a defined period of time, to specified targets and (c) upon exercise of those options, secure or “take” licenses to develop and commercialize products for the specified targets on established terms. Under these agreements, fees may be due to the Company (i) at the inception of the arrangement (referred to as “upfront” fees or payments), (ii) upon taking an option with respect to a specific target (referred to as option fees or payments earned, if any, when the option is “taken”), (iii) upon the exercise of a previously taken option to acquire a development and commercialization license(s) (referred to as exercise fees or payments earned, if any, when the development and commercialization license is “taken”), or (iv) some combination of all of these fees.

 

The accounting for right-to-test agreements is dependent on the nature of the options granted to the collaborative partner. Options are considered substantive if, at the inception of a right-to-test agreement, the Company is at risk as to whether the collaborative partner will choose to exercise the options to secure development and commercialization licenses. Factors that are considered in evaluating whether options are substantive include the overall objective of the arrangement, the benefit the collaborator might obtain from the agreement without exercising the options, the cost to exercise the options relative to the total upfront consideration, and the additional financial commitments or economic penalties imposed on the collaborator as a result of exercising the options.

 

For right-to-test agreements where the options to secure development and commercialization licenses to the Company’s ADC technology are considered substantive, the Company does not consider the development and commercialization licenses to be a deliverable at the inception of the agreement. For those right-to-test agreements entered into prior to the adoption of ASU No. 2009-13 where the options to secure development and commercialization licenses are considered substantive, the Company has deferred the upfront payments received and recognizes this revenue over the period during which the collaborator could elect to take options for development and commercialization licenses. These periods are specific to each collaboration agreement. If a collaborator takes an option to acquire a development and commercialization license under these agreements, any substantive option fee is deferred and recognized over the life of the option, generally 12 to 18 months. If a collaborator exercises an option and takes a development and commercialization license to a specific target, the Company attributes the exercise fee to the development and commercialization license. Upon exercise of an option to acquire a development and commercialization license, the Company would also attribute any remaining deferred option fee to the development and commercialization license and apply the multiple-element revenue recognition criteria to the development and commercialization license and any other deliverables to determine the appropriate revenue recognition, which will be consistent with the Company’s accounting policy for upfront payments on single-target licenses. In the event a right-to-test agreement were to be terminated, the Company would recognize as revenue any portion of the upfront fee that had not previously been recorded as revenue, but was classified as deferred revenue, at the date of such termination. None of the Company’s right-to-test agreements entered into subsequent to the adoption of ASU No. 2009-13 has been determined to contain substantive options.

 

For right-to-test agreements where the options to secure development and commercialization licenses to the Company’s ADC technology are not considered substantive, the Company considers the development and commercialization licenses to be a deliverable at the inception of the agreement and applies the multiple-element revenue recognition criteria to determine the appropriate revenue recognition. None of the Company’s right-to-test agreements entered into prior to the adoption of ASU No. 2009-13 has been determined to contain non-substantive options.

 

The Company does not directly control when or if any collaborator will exercise its options for development and commercialization licenses. As a result, the Company cannot predict when or if it will recognize revenues in connection with any of the foregoing.

 

Financial Instruments and Concentration of Credit Risk

 

Financial Instruments and Concentration of Credit Risk

 

Cash and cash equivalents are primarily maintained with three financial institutions in the U.S. Deposits with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk. The Company’s cash equivalents consist of money market funds with underlying investments primarily being U.S. Government issued securities and high quality, short term commercial paper. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and marketable securities. The Company held no marketable securities as of December 31, 2015 and June 30, 2015. The Company’s investment policy, approved by the Board of Directors, limits the amount it may invest in any one type of investment, thereby reducing credit risk concentrations.

Cash and Cash Equivalents

 

Cash and Cash Equivalents

 

All highly liquid financial instruments with maturities of three months or less when purchased are considered cash equivalents. As of December 31, 2015 and June 30, 2015, the Company held $212.3 million and $278.1 million, respectively, in cash and money market funds consisting principally of U.S. Government-issued securities and high quality, short-term commercial paper which were classified as cash and cash equivalents.

Non-cash Investing Activities

 

Non-cash Investing Activities

 

The Company had $2.5 million of accrued capital expenditures as of December 31, 2015 which have been treated as a non-cash investing activity and, accordingly, are not reflected in the consolidated statement of cash flows.  Accrued capital expenditures as of December 31, 2014 were not material and are included in the consolidated statement of cash flows.

Fair Value of Financial Instruments

 

Fair Value of Financial Instruments

 

Fair value is defined under ASC Topic 820, “Fair Value Measurements and Disclosures,” as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs.  The standard describes a fair value hierarchy to measure fair value which is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

 

·

Level 1 - Quoted prices in active markets for identical assets or liabilities.

 

·

Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

·

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

As of December 31, 2015, the Company held certain assets that are required to be measured at fair value on a recurring basis.  The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of December 31, 2015 (in thousands):

 

 

 

Fair Value Measurements at December 31, 2015 Using

 

 

 

 

 

Quoted Prices in
Active Markets for
Identical Assets

 

Significant Other
Observable Inputs

 

Significant
Unobservable
Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Cash equivalents

 

$

193,209 

 

$

193,209 

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2015, the Company held certain assets that are required to be measured at fair value on a recurring basis. The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of June 30, 2015 (in thousands):

 

 

 

Fair Value Measurements at June 30, 2015 Using

 

 

 

 

 

Quoted Prices in
Active Markets for
Identical Assets

 

Significant Other
Observable Inputs

 

Significant
Unobservable
Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Cash equivalents

 

$

269,304 

 

$

269,304 

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The fair value of the Company’s cash equivalents is based on quoted prices from active markets.

Unbilled Revenue

 

Unbilled Revenue

 

The majority of the Company’s unbilled revenue at December 31, 2015 and June 30, 2015 represents research funding earned prior to those dates based on actual resources utilized under the Company’s agreements with various collaborators.

 

Inventory

 

Inventory

 

Inventory costs relate to clinical trial materials being manufactured for sale to the Company’s collaborators. Inventory is stated at the lower of cost or market as determined on a first-in, first-out (FIFO) basis.

 

Inventory at December 31, 2015 and June 30, 2015 is summarized below (in thousands):

 

 

 

December 31,
2015

 

June 30,
2015

 

 

 

 

 

 

 

Raw materials

 

$

367 

 

$

279 

 

Work in process

 

1,170 

 

2,656 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

1,537 

 

$

2,935 

 

 

 

 

 

 

 

 

 

 

Raw materials inventory consists entirely of DM1 and DM4, proprietary cell-killing agents the Company developed as part of its ADC technology. The Company considers more than a twelve month supply of raw materials that is not supported by firm, fixed orders and/or projections from its collaborators to be excess and establishes a reserve to reduce to zero the value of any such excess raw material inventory with a corresponding charge to research and development expense. In accordance with this policy, the Company recorded $966,000 of expense related to excess inventory during the three and six-months ended December 31, 2015 compared to $55,000 and $392,000 of expense related to excess inventory  recorded during the three and six month periods ended December 31, 2014, respectively.

 

Work in process inventory consists of conjugate manufactured for sale to the Company’s collaborators to be used in preclinical and clinical studies.  All conjugate is made to order at the request of the collaborators and subject to the terms and conditions of respective supply agreements.  As such, no reserve for work in process inventory is required.

Computation of Net Loss per Common Share

 

Computation of Net Loss per Common Share

 

Basic and diluted net loss per share is calculated based upon the weighted average number of common shares outstanding during the period. During periods of income, participating securities are allocated a proportional share of income determined by dividing total weighted average participating securities by the sum of the total weighted average common shares and participating securities (the “two-class method”). Shares of the Company’s restricted stock participate in any dividends declared by the Company and are therefore considered to be participating securities. Participating securities have the effect of diluting both basic and diluted earnings per share during periods of income. During periods of loss, no loss is allocated to participating securities since they have no contractual obligation to share in the losses of the Company. The impact of applying the two-class method was not material. Diluted (loss) income per share is computed after giving consideration to the dilutive effect of stock options and restricted stock that are outstanding during the period, except where such non-participating securities would be anti-dilutive.

 

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

Options outstanding to purchase common stock and unvested restricted stock

 

11,668

 

10,241

 

11,668

 

10,241

 

 

 

 

 

 

 

 

 

 

 

Common stock equivalents under treasury stock method

 

990

 

730

 

1,139

 

969

 

 

Potentially dilutive securities representing 7.9 and 7.1 million shares of common stock for the three and six-month periods ended December 31, 2014, respectively, were excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive. The Company’s common stock equivalents have not been included in any net loss per share calculation because their effect is anti-dilutive due to the Company’s net loss position.

 

 

Stock-Based Compensation

 

Stock-Based Compensation

 

As of December 31, 2015, the Company is authorized to grant future awards under one employee share-based compensation plan, which is the ImmunoGen, Inc. 2006 Employee, Director and Consultant Equity Incentive Plan, or the 2006 Plan. At the annual meeting of shareholders on November 11, 2014, an amendment to the 2006 Plan was approved and an additional 5,500,000 shares were authorized for issuance under this plan.  As amended, the 2006 Plan provides for the issuance of Stock Grants, the grant of Options and the grant of Stock-Based Awards for up to 17,500,000 shares of the Company’s common stock, as well as 1,676,599 shares of common stock which represent awards granted under the previous stock option plan, the ImmunoGen, Inc. Restated Stock Option Plan, or the Former Plan, that were forfeited, expired or were cancelled without delivery of shares of common stock or which resulted in the forfeiture of shares of common stock back to the Company between November 11, 2006 and June 30, 2014. Option awards are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Options vest at various periods of up to four years and may be exercised within ten years of the date of grant.

 

The stock-based awards are accounted for under ASC Topic 718, “Compensation—Stock Compensation.” Pursuant to Topic 718, the estimated grant date fair value of awards is charged to the statement of operations and comprehensive loss over the requisite service period, which is the vesting period. Such amounts have been reduced by an estimate of forfeitures of all unvested awards. The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the assumptions noted in the following table. As the Company has not paid dividends since inception, nor does it expect to pay any dividends for the foreseeable future, the expected dividend yield assumption is zero. Expected volatility is based exclusively on historical volatility data of the Company’s stock. The expected term of stock options granted is based exclusively on historical data and represents the period of time that stock options granted are expected to be outstanding. The expected term is calculated for and applied to one group of stock options as the Company does not expect substantially different exercise or post-vesting termination behavior among its option recipients. The risk-free rate of the stock options is based on the U.S. Treasury rate in effect at the time of grant for the expected term of the stock options.

 

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

Dividend

 

None

 

None

 

None

 

None

 

Volatility

 

65.20%

 

60.95%

 

66.86%

 

60.87%

 

Risk-free interest rate

 

1.67%

 

1.81%

 

1.86%

 

1.88%

 

Expected life (years)

 

6.3

 

6.3

 

6.3

 

6.3

 

 

Using the Black-Scholes option-pricing model, the weighted average grant date fair values of options granted during the three months ended December 31, 2015 and 2014 were $7.49 and $5.77 per share, respectively, and $9.99 and $6.24 per share for options granted during the six months ended December 31, 2015 and 2014, respectively.

 

Stock compensation expense related to stock options and restricted stock awards granted under the 2006 Plan was $4.5 million and $10.2 million during the three and six months ended December 31, 2015, respectively, compared to stock compensation expense of $3.6 million and $8.9 million for the three and six months ended December 31, 2014, respectively. As of December 31, 2015, the estimated fair value of unvested employee awards was $32.8 million, net of estimated forfeitures. The weighted-average remaining vesting period for these awards is approximately two years.

 

During the six months ended December 31, 2015, holders of options issued under the Company’s equity plans exercised their rights to acquire an aggregate of approximately 461,000 shares of common stock at prices ranging from $3.19 to $17.00 per share.  The total proceeds to the Company from these option exercises were approximately $4.8 million.

Segment Information

 

Segment Information

 

During the six months ended December 31, 2015, the Company continued to operate in one operating segment which is the business of discovery of monoclonal antibody-based anticancer therapeutics.

 

The percentages of revenues recognized from significant customers of the Company in the three and six months ended December 31, 2015 and 2014 are included in the following table:

 

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

Collaborative Partner:

 

2015

 

2014

 

2015

 

2014

 

Lilly

 

1%

 

35%

 

16%

 

28%

 

Novartis

 

1%

 

54%

 

1%

 

44%

 

Roche

 

36%

 

10%

 

37%

 

14%

 

Sanofi

 

11%

 

—%

 

6%

 

10%

 

Takeda

 

49%

 

—%

 

28%

 

—%

 

 

There were no other customers of the Company with significant revenues in the three and six months ended December 31, 2015 and 2014.

Recent Accounting Pronouncements

 

Recent Accounting Pronouncements

 

In May 2014, the FASB issued Accounting Standards Update 2014-9, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), to clarify the principles for recognizing revenue. This update provides a comprehensive new revenue recognition model that requires revenue to be recognized in a manner to depict the transfer of goods or services to a customer at an amount that reflects the consideration expected to be received in exchange for those goods or services. The original effective date would have required the Company to adopt beginning in its first quarter of fiscal 2018. In July 2015, the FASB voted to amend ASU 2014-09 by approving a one-year deferral of the effective date as well as providing the option to early adopt the standard on the original effective date.  Accordingly, the Company may adopt the standard in either its first quarter of fiscal 2018 or 2019. The new revenue standard allows for either full retrospective or modified retrospective application. The Company is currently evaluating the timing of its adoption, the transition method to apply and the impact that this guidance will have on its consolidated financial statements and related disclosures.

 

In August 2014, the FASB issued Accounting Standards Update 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This new standard gives a company’s management the final responsibilities to decide whether there’s substantial doubt about the company’s ability to continue as a going concern and to provide related footnote disclosures. The standard provides guidance to management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that companies commonly provide in their footnotes. Under the new standard, management must decide whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the company’s ability to continue as a going concern within one year after the date that the financial statements are issued, or within one year after the date that the financial statements are available to be issued when applicable. This guidance is effective for annual reporting beginning after December 15, 2016, including interim periods within the year of adoption, with early application permitted. Accordingly, the standard is effective for the Company on July 1, 2017. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

In April 2015, the FASB issued Accounting Standards Update 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. To simplify presentation of debt issuance costs, this new standard requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  The recognition and measurement guidance for debt issuance costs are not affected by this update.  This guidance is effective for annual reporting beginning after December 15, 2015, including interim periods within the year of adoption, and calls for retrospective application, with early application permitted. Accordingly, the standard is effective for the Company on July 1, 2016. The Company’s consolidated balance sheet as of December 31, 2015 includes in assets $5 million of debt issuance costs classified as deferred financing costs.

 

In July 2015, the FASB issued Accounting Standards Update 2015-11, Simplifying the Measurement of Inventory (Topic 330). To simplify the principles for subsequent measurement of inventory, this new standard requires inventory measured using any method other than LIFO or the retail method shall be measured at the lower of cost and net realizable value, rather than lower of cost or market. This guidance is effective for annual reporting beginning after December 15, 2016, including interim periods within the year of adoption, and calls for prospective application, with early application permitted. Accordingly, the standard is effective for the Company on July 1, 2017. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.

 

In November 2015, the FASB issued Accounting Standards Update 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740). To simplify the presentation of deferred income taxes, the amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position.  This guidance is effective for annual reporting beginning after December 15, 2016, including interim periods within the year of adoption, with early application permitted. The Company implemented the recommendations of this Update prospectively, resulting in a reduction of long-term assets and current liabilities of approximately $843,000 as of December 31, 2015. The prior period balances were not retrospectively adjusted.

 

In January 2016, the FASB issued Accounting Standards Update 2016-1, Recognition and Measurement of Financial Assets and Financial Liabilities (Topic 825). The amendments in this Update supersede the guidance to classify equity securities with readily determinable fair values into different categories (that is, trading or available-for-sale) and require equity securities (including other ownership interests, such as partnerships, unincorporated joint ventures, and limited liability companies) to be measured at fair value with changes in the fair value recognized through net income.  The amendments allow equity investments that do not have readily determinable fair values to be remeasured at fair value either upon the occurrence of an observable price change or upon identification of an impairment. The amendments also require enhanced disclosures about those investments. The amendments improve financial reporting by providing relevant information about an entity’s equity investments and reducing the number of items that are recognized in other comprehensive income.  This guidance is effective for annual reporting beginning after December 15, 2017, including interim periods within the year of adoption, and calls for prospective application, with early application permitted. Accordingly, the standard is effective for the Company on July 1, 2018. The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.



v3.3.1.900
Summary of Significant Accounting Policies (Tables)
6 Months Ended
Dec. 31, 2015
Summary of Significant Accounting Policies  
Schedule of assets that are required to be measured at fair value on a recurring basis

 

As of December 31, 2015, the Company held certain assets that are required to be measured at fair value on a recurring basis.  The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of December 31, 2015 (in thousands):

 

 

 

Fair Value Measurements at December 31, 2015 Using

 

 

 

 

 

Quoted Prices in
Active Markets for
Identical Assets

 

Significant Other
Observable Inputs

 

Significant
Unobservable
Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Cash equivalents

 

$

193,209 

 

$

193,209 

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of June 30, 2015, the Company held certain assets that are required to be measured at fair value on a recurring basis. The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of June 30, 2015 (in thousands):

 

 

 

Fair Value Measurements at June 30, 2015 Using

 

 

 

 

 

Quoted Prices in
Active Markets for
Identical Assets

 

Significant Other
Observable Inputs

 

Significant
Unobservable
Inputs

 

 

 

Total

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Cash equivalents

 

$

269,304 

 

$

269,304 

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Schedule of inventory

 

Inventory at December 31, 2015 and June 30, 2015 is summarized below (in thousands):

 

 

 

December 31,
2015

 

June 30,
2015

 

 

 

 

 

 

 

Raw materials

 

$

367 

 

$

279 

 

Work in process

 

1,170 

 

2,656 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

1,537 

 

$

2,935 

 

 

 

 

 

 

 

 

 

 

Schedule of common stock equivalents, as calculated in accordance with the treasury-stock method

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

Options outstanding to purchase common stock and unvested restricted stock

 

11,668

 

10,241

 

11,668

 

10,241

 

 

 

 

 

 

 

 

 

 

 

Common stock equivalents under treasury stock method

 

990

 

730

 

1,139

 

969

 

 

Schedule of weighted-average assumptions used to estimate the fair value of each stock option

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

 

 

2015

 

2014

 

2015

 

2014

 

Dividend

 

None

 

None

 

None

 

None

 

Volatility

 

65.20%

 

60.95%

 

66.86%

 

60.87%

 

Risk-free interest rate

 

1.67%

 

1.81%

 

1.86%

 

1.88%

 

Expected life (years)

 

6.3

 

6.3

 

6.3

 

6.3

 

 

Schedule of percentage of total revenues recognized from each significant customer

 

 

Three Months Ended
December 31,

 

Six Months Ended
December 31,

 

Collaborative Partner:

 

2015

 

2014

 

2015

 

2014

 

Lilly

 

1%

 

35%

 

16%

 

28%

 

Novartis

 

1%

 

54%

 

1%

 

44%

 

Roche

 

36%

 

10%

 

37%

 

14%

 

Sanofi

 

11%

 

—%

 

6%

 

10%

 

Takeda

 

49%

 

—%

 

28%

 

—%

 

 



v3.3.1.900
Liability Related to Sale of Future Royalties (Tables)
6 Months Ended
Dec. 31, 2015
Liabilitiy Related to Sale of Future Royalties  
Schedule of Liability account during the period from the inception of the royalty transaction

 

The following table shows the activity within the liability account during the six-month period ended December 31, 2015 (in thousands):

 

 

 

Period from
June 30, 2015 to
December 31,
2015

 

Liability related to sale of future royalties — beginning balance

 

$

199,662

 

Non-cash Kadcyla royalty revenue

 

(11,975

)

Non-cash interest expense recognized

 

9,621

 

 

 

 

 

 

 

 

 

Liability related to sale of future royalties — ending balance

 

$

197,308

 

 

 

 

 

 

 



v3.3.1.900
Commitments and Contingencies (Tables)
6 Months Ended
Dec. 31, 2015
Commitments and Contingencies  
Minimum rental commitments for the next five fiscal years and thereafter under the non-cancelable operating lease agreements

 

The minimum rental commitments for the Company’s facilities, including real estate taxes and other expenses, for the next five fiscal years and thereafter under the non-cancelable operating lease agreements discussed above are as follows (in thousands):

 

2016 (six months remaining)

 

$

3,702

 

2017

 

7,444

 

2018

 

7,553

 

2019

 

6,745

 

2020

 

6,730

 

Thereafter

 

40,690

 

 

 

 

 

Total minimum lease payments

 

$

72,864

 

Total minimum rental payments from sublease

 

(310

)

 

 

 

 

Total minimum lease payments, net

 

$

72,554

 

 

 

 

 

 

 



v3.3.1.900
Summary of Significant Accounting Policies - Revenue recognition, Financial Instruments and Concentration of Credit Risk (Details)
1 Months Ended 3 Months Ended 6 Months Ended 10 Months Ended 18 Months Ended 37 Months Ended 150 Months Ended
Jan. 31, 2016
USD ($)
Sep. 30, 2015
USD ($)
May. 31, 2013
item
Dec. 31, 2012
item
Dec. 31, 2011
USD ($)
item
Nov. 30, 2009
item
Sep. 30, 2009
item
Mar. 31, 2015
USD ($)
item
Dec. 31, 2015
USD ($)
item
Dec. 31, 2015
USD ($)
Dec. 31, 2015
USD ($)
Dec. 31, 2014
USD ($)
Dec. 31, 2015
USD ($)
Jun. 30, 2015
USD ($)
Jun. 30, 2014
USD ($)
Summary of Significant Accounting Policies                              
Number of types of licensing and development agreements with collaborative partners                 2            
Cash and cash equivalents | $                 $ 212,283,000 $ 212,283,000 $ 212,283,000 $ 106,604,000 $ 212,283,000 $ 278,109,000 $ 142,261,000
Financial Instruments and Concentration of Credit Risk                              
Number of financial institutions in the U.S. in which cash and cash equivalents are primarily maintained                 3            
Number of marketable securities held by entity | $                 $ 0 0 0   0 $ 0  
Noncash Investing Activities                              
Accrued capital expenditures | $                 $ 2,500,000            
Development and Commercialization License                              
Summary of Significant Accounting Policies                              
Average involvement period over which the upfront payments on single-target licenses are amortized                 6 years 6 months            
Difference between the full cost to manufacture and amounts received from collaborators for preclinical and clinical materials | $                     $ 5,500,000        
Number of types of milestone payments under collaborative arrangements                 3            
Number of quarters in arrear for revenue recognition                 1            
Development and Commercialization License | Minimum                              
Summary of Significant Accounting Policies                              
Period to earn royalty payments                 10 years            
Development and Commercialization License | Maximum                              
Summary of Significant Accounting Policies                              
Period to earn royalty payments                 12 years            
Development and Commercialization License | Kadcyla | Minimum                              
Summary of Significant Accounting Policies                              
Period to earn royalty payments                 10 years            
Development and Commercialization License | Kadcyla | Maximum                              
Summary of Significant Accounting Policies                              
Period to earn royalty payments                 12 years            
Right-to-test agreement | Minimum                              
Summary of Significant Accounting Policies                              
Average period over which upfront payments are deferred and recognized                 12 months            
Right-to-test agreement | Maximum                              
Summary of Significant Accounting Policies                              
Average period over which upfront payments are deferred and recognized                 18 months            
Amgen | Exclusive license                              
Summary of Significant Accounting Policies                              
Number of single-target licenses                 4            
Amgen | Development and Commercialization License                              
Summary of Significant Accounting Policies                              
Number of single-target licenses                 2            
Amgen | Development and Commercialization License | Exclusive license                              
Summary of Significant Accounting Policies                              
Number of single-target licenses                 4            
Amgen | Development and Commercialization License | Non-exclusive license                              
Summary of Significant Accounting Policies                              
Number of single-target licenses     1                        
Amgen | Right-to-test agreement | Exclusive license                              
Summary of Significant Accounting Policies                              
Number of single-target licenses       3   3 3                
Bayer HealthCare | Development and Commercialization License | Exclusive license                              
Summary of Significant Accounting Policies                              
Number of single-target licenses                 1            
Biotest | Development and Commercialization License | Exclusive license                              
Summary of Significant Accounting Policies                              
Number of single-target licenses                 1            
Lilly | Development and Commercialization License                              
Summary of Significant Accounting Policies                              
Proceeds from Collaborators | $                       $ 23,500,000      
Lilly | Development and Commercialization License | Phase I clinical trial                              
Summary of Significant Accounting Policies                              
Number of single-target licenses                 2            
Lilly | Development and Commercialization License | Phase I clinical trial | Development milestones                              
Summary of Significant Accounting Policies                              
Proceeds from Collaborators | $   $ 5,000,000                          
Lilly | Development and Commercialization License | Exclusive license                              
Summary of Significant Accounting Policies                              
Number of single-target licenses                 3            
Lilly | Right-to-test agreement                              
Summary of Significant Accounting Policies                              
Proceeds from Collaborators | $         $ 20,000,000                    
Number of single-target licenses         3                    
Novartis | Development and Commercialization License | Exclusive license                              
Summary of Significant Accounting Policies                              
Number of single-target licenses                 5            
Number of licenses to two related targets                 1            
Number of related targets                 2            
Roche | Development and Commercialization License | Exclusive license                              
Summary of Significant Accounting Policies                              
Number of single-target licenses                 5            
Sanofi | Development and Commercialization License                              
Summary of Significant Accounting Policies                              
Proceeds from Collaborators | $                         $ 20,500,000    
Number of related targets                 1            
Sanofi | Development and Commercialization License | Exclusive license                              
Summary of Significant Accounting Policies                              
Number of single-target licenses                 1            
Number of licenses to multiple individual targets                 1            
Takeda | Development and Commercialization License                              
Summary of Significant Accounting Policies                              
Proceeds from Collaborators | $                   $ 25,900,000          
Takeda | Development and Commercialization License | Exclusive license                              
Summary of Significant Accounting Policies                              
Number of single-target licenses                 1            
Takeda | Right-to-test agreement                              
Summary of Significant Accounting Policies                              
Proceeds from Collaborators | $               $ 20,000,000              
Takeda | Right-to-test agreement | Maximum                              
Summary of Significant Accounting Policies                              
Number of single-target licenses               2              
Oxford BioTherapeutics Ltd Member | Amgen | Development and Commercialization License | Exclusive license                              
Summary of Significant Accounting Policies                              
Number of single-target licenses                 1            
Subsequent event | Bayer HealthCare | Phase II clinical trial | Anetumab Ravtansine | Development milestones                              
Summary of Significant Accounting Policies                              
Proceeds from Collaborators | $ $ 10,000,000                            


v3.3.1.900
Summary of Significant Accounting Policies - Fair Value of Financial Instruments (Details) - Recurring basis - USD ($)
$ in Thousands
Dec. 31, 2015
Jun. 30, 2015
Fair value hierarchy for the Company's financial assets measured at fair value    
Cash equivalents $ 193,209 $ 269,304
Quoted Prices in Active Markets for Identical Assets (Level 1)    
Fair value hierarchy for the Company's financial assets measured at fair value    
Cash equivalents $ 193,209 $ 269,304


v3.3.1.900
Summary of Significant Accounting Policies - Inventory and Computation of Net Loss per Common Share (Details) - USD ($)
shares in Thousands
3 Months Ended 6 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2014
Jun. 30, 2015
Inventory          
Raw materials $ 367,000   $ 367,000   $ 279,000
Work in process 1,170,000   1,170,000   2,656,000
Total 1,537,000   $ 1,537,000   $ 2,935,000
Minimum supply period of raw materials that is not supported by firm, fixed orders and/or projections from collaborators considered to expense inventory     12 months    
Charges to research and development expense related to raw material inventory identified as excess 966,000 $ 55,000 $ 966,000 $ 392,000  
Reserve for work in process $ 0   $ 0    
Computation of Net Income (Loss) per Common Share          
Options outstanding to purchase common stock and unvested restricted stock (in shares) 11,668 10,241 11,668 10,241  
Common stock equivalents under treasury stock method (in shares) 990 730 1,139 969  
Potentially dilutive securities excluded from the computation of diluted earnings per share because their effect would have been anti-dilutive (in shares)   7,900   7,100  


v3.3.1.900
Summary of Significant Accounting Policies - Stock-Based Compensation (Details)
$ / shares in Units, $ in Thousands
3 Months Ended 6 Months Ended
Nov. 11, 2014
shares
Dec. 31, 2015
USD ($)
$ / shares
Dec. 31, 2014
USD ($)
$ / shares
Dec. 31, 2015
USD ($)
item
$ / shares
shares
Dec. 31, 2014
USD ($)
$ / shares
Additional disclosure for options          
Cash received for exercise of stock options | $       $ 4,791 $ 1,316
2006 Plan          
Stock-Based Compensation          
Number of employee share-based compensation plans | item       1  
Additional number of shares authorized for issuance | shares 5,500,000        
Common stock authorized for issuance (in shares) | shares 17,500,000        
Additional disclosure for options          
Stock compensation expense | $   $ 4,500 $ 3,600 $ 10,200 $ 8,900
Estimated fair value of unvested employee awards, net of estimated forfeitures | $       $ 32,800  
Weighted average vesting period of unvested employee awards       2 years  
Number of Stock Options          
Granted (in shares) | shares       1,676,599  
2006 Plan | Stock options          
Weighted-average assumptions used to estimate the fair value of each stock option          
Number of group of awards for which expected term is calculated for and applied | item       1  
Dividend (as a percent)   0.00% 0.00% 0.00% 0.00%
Volatility (as a percent)   65.20% 60.95% 66.86% 60.87%
Risk-free interest rate (as a percent)   1.67% 1.81% 1.86% 1.88%
Expected life   6 years 3 months 18 days 6 years 3 months 18 days 6 years 3 months 18 days 6 years 3 months 18 days
Weighted-average grant date fair values of options granted (in dollars per share) | $ / shares   $ 7.49 $ 5.77 $ 9.99 $ 6.24
Additional disclosure for options          
Stock options exercised (in shares) | shares       461,000  
Cash received for exercise of stock options | $       $ 4,800  
2006 Plan | Stock options | Maximum          
Stock-Based Compensation          
Vesting period       4 years  
Exercise period       10 years  
Additional disclosure for options          
Exercised (in dollars per share) | $ / shares       $ 17.00  
2006 Plan | Stock options | Minimum          
Additional disclosure for options          
Exercised (in dollars per share) | $ / shares       $ 3.19  


v3.3.1.900
Summary of Significant Accounting Policies - Segment Information (Details)
3 Months Ended 6 Months Ended
Dec. 31, 2015
USD ($)
Dec. 31, 2014
Dec. 31, 2015
USD ($)
item
Dec. 31, 2014
Segment Information        
Number of operating segments | item     1  
Recent Accounting Pronouncements        
Deferred financing costs $ 5,000,000   $ 5,000,000  
Reduction in long-term assets and Liabilities, current $ 843,000   $ 843,000  
Takeda | Revenues Percentage        
Collaborative Partner:        
Percentages of revenue recognized 49.00%   28.00%  
Novartis | Revenues Percentage        
Collaborative Partner:        
Percentages of revenue recognized 1.00% 54.00% 1.00% 44.00%
Lilly | Revenues Percentage        
Collaborative Partner:        
Percentages of revenue recognized 1.00% 35.00% 16.00% 28.00%
Sanofi | Revenues Percentage        
Collaborative Partner:        
Percentages of revenue recognized 11.00%   6.00% 10.00%
Roche | Revenues Percentage        
Collaborative Partner:        
Percentages of revenue recognized 36.00% 10.00% 37.00% 14.00%


v3.3.1.900
Collaborative Agreements - Roche (Details) - USD ($)
3 Months Ended 6 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2014
Collaborative Agreements disclosures        
Non-cash royalty revenue related to sale of future royalties $ 6,291,000   $ 11,975,000  
Royalties on net sales of Kadcyla $ 195,000 $ 4,625,000 $ 195,000 $ 8,791,000
Exclusive license | Roche | Development and Commercialization License | Kadcyla        
Collaborative Agreements disclosures        
Period in arrears to receive royalty reports and payments related to sales of Kadcyla     1 month  
Non-cash royalty revenue related to sale of future royalties     $ 12,000,000  
Royalties on net sales of Kadcyla     $ 195,000 $ 8,800,000


v3.3.1.900
Collaborative Agreements - Amgen (Details)
1 Months Ended 3 Months Ended 6 Months Ended
Oct. 31, 2013
USD ($)
May. 31, 2013
USD ($)
item
Dec. 31, 2012
USD ($)
item
Nov. 30, 2009
USD ($)
item
Sep. 30, 2009
USD ($)
item
Dec. 31, 2015
USD ($)
Dec. 31, 2014
USD ($)
Dec. 31, 2015
USD ($)
item
Dec. 31, 2014
USD ($)
Collaborative Agreements disclosures                  
Amount of arrangement consideration included in license and milestone fees           $ 10,692,000 $ 41,417,000 $ 16,762,000 $ 47,651,000
Amgen | Development milestones | Phase II clinical trial                  
Collaborative Agreements disclosures                  
Potential milestone payments           $ 3,000,000   $ 3,000,000  
Amgen | Exclusive license                  
Collaborative Agreements disclosures                  
Number of single-target licenses | item               4  
Amgen | Exclusive license | AMG595 and AMG172                  
Collaborative Agreements disclosures                  
Number of single-target licenses | item               2  
Amgen | Development and Commercialization License                  
Collaborative Agreements disclosures                  
Number of single-target licenses | item               2  
Potential milestone payments $ 34,000,000                
Amgen | Development and Commercialization License | IND application effective                  
Collaborative Agreements disclosures                  
Potential milestone payments   $ 1,000,000              
Amount of arrangement consideration included in license and milestone fees               $ 1,000,000  
Amgen | Development and Commercialization License | Development milestones                  
Collaborative Agreements disclosures                  
Potential milestone payments 9,000,000                
Amgen | Development and Commercialization License | Regulatory milestones                  
Collaborative Agreements disclosures                  
Potential milestone payments 20,000,000                
Amgen | Development and Commercialization License | Sales milestones                  
Collaborative Agreements disclosures                  
Potential milestone payments 5,000,000                
Amgen | Development and Commercialization License | Exclusive license                  
Collaborative Agreements disclosures                  
Number of single-target licenses | item               4  
Fee received per license     $ 1,000,000 $ 1,000,000 $ 1,000,000        
Fee received on conversion of non-exclusive license agreement to an exclusive license $ 500,000                
Amgen | Development and Commercialization License | Non-exclusive license                  
Collaborative Agreements disclosures                  
Number of single-target licenses | item   1              
Fee received per license   $ 500,000              
Amgen | Right-to-test agreement | Exclusive license                  
Collaborative Agreements disclosures                  
Number of single-target licenses | item     3 3 3        


v3.3.1.900
Collaborative Agreements - Sanofi (Details)
$ in Thousands
1 Months Ended 3 Months Ended 6 Months Ended 150 Months Ended
Dec. 31, 2013
USD ($)
Dec. 31, 2015
USD ($)
Dec. 31, 2014
USD ($)
Dec. 31, 2015
USD ($)
item
Dec. 31, 2014
USD ($)
Dec. 31, 2015
USD ($)
Dec. 31, 2006
USD ($)
Jul. 31, 2003
USD ($)
Collaborative Agreements disclosures                
License and milestone fees   $ 10,692 $ 41,417 $ 16,762 $ 47,651      
Sanofi | Development and Commercialization License                
Collaborative Agreements disclosures                
Number of undisclosed targets with exclusive licenses | item       1        
Potential milestone payments               $ 21,500
Payments received under collaboration agreement           $ 20,500    
License exercise fee, per license             $ 2,000  
Fee received per license $ 2,000              
License and milestone fees         1,700      
Sanofi | Development and Commercialization License | Maximum                
Collaborative Agreements disclosures                
Potential milestone payments             30,000  
Sanofi | Development and Commercialization License | Phase IIb clinical trial                
Collaborative Agreements disclosures                
Potential milestone payments   $ 4,000   $ 4,000   4,000    
Sanofi | Development and Commercialization License | Development milestones                
Collaborative Agreements disclosures                
Potential milestone payments             10,000 7,500
Sanofi | Development and Commercialization License | Regulatory milestones                
Collaborative Agreements disclosures                
Potential milestone payments             $ 20,000 14,000
Sanofi | Development and Commercialization License | Undisclosed Target | Development milestones | Phase I clinical trial                
Collaborative Agreements disclosures                
Potential milestone payments               1,000
Sanofi | Development and Commercialization License | SAR566658 | Development milestones | Phase IIb clinical trial                
Collaborative Agreements disclosures                
Potential milestone payments               3,000
Sanofi | Development and Commercialization License | Isatuximab | Phase IIb clinical trial                
Collaborative Agreements disclosures                
Payments received under collaboration agreement           $ 3,000    
Sanofi | Development and Commercialization License | Isatuximab | Development milestones | Phase III clinical trial                
Collaborative Agreements disclosures                
Potential milestone payments               $ 3,000
Sanofi | Development and Commercialization License | SAR408701 | Phase I clinical trial                
Collaborative Agreements disclosures                
Payments received under collaboration agreement         1,000      
Sanofi | Development and Commercialization License | SAR408701 | Development milestones | Phase IIb clinical trial                
Collaborative Agreements disclosures                
Potential milestone payments     $ 3,000   $ 3,000      
Sanofi | Development and Commercialization License | SAR428926 | Phase I clinical trial                
Collaborative Agreements disclosures                
License and milestone fees       $ 2,000        


v3.3.1.900
Collaborative Agreements - Bayer (Details) - Bayer HealthCare - USD ($)
$ in Millions
1 Months Ended 6 Months Ended
Jan. 31, 2016
Oct. 31, 2008
Dec. 31, 2015
Exclusive license      
Collaborative Agreements disclosures      
Payments received under collaboration agreement   $ 4.0 $ 3.0
Potential milestone payments   170.5  
Exclusive license | Development milestones      
Collaborative Agreements disclosures      
Potential milestone payments   16.0 2.0
Exclusive license | Regulatory milestones      
Collaborative Agreements disclosures      
Potential milestone payments   44.5 $ 6.0
Exclusive license | Sales milestones      
Collaborative Agreements disclosures      
Potential milestone payments   $ 110.0  
Subsequent event | Development milestones | Phase II clinical trial | Anetumab Ravtansine      
Collaborative Agreements disclosures      
Payments received under collaboration agreement $ 10.0    


v3.3.1.900
Collaborative Agreements - Lilly (Details)
$ in Thousands
1 Months Ended 3 Months Ended 6 Months Ended 37 Months Ended
Sep. 30, 2015
USD ($)
Dec. 31, 2011
USD ($)
item
Dec. 31, 2015
USD ($)
Dec. 31, 2014
USD ($)
Dec. 31, 2015
USD ($)
item
Dec. 31, 2014
USD ($)
Dec. 31, 2014
USD ($)
Dec. 31, 2013
USD ($)
Collaborative Agreements disclosures                
Amount of arrangement consideration included in license and milestone fees     $ 10,692 $ 41,417 $ 16,762 $ 47,651    
Lilly | Right-to-test agreement                
Collaborative Agreements disclosures                
Number of development and commercialization licenses taken | item   3            
Payments received under collaboration agreement   $ 20,000            
Lilly | Right-to-test agreement | No exercise fee                
Collaborative Agreements disclosures                
License exercise fee, per subsequent license   0            
Lilly | Right-to-test agreement | Exercise fee of $2 million                
Collaborative Agreements disclosures                
License exercise fee, per subsequent license   $ 2,000           $ 2,000
Lilly | Development and Commercialization License                
Collaborative Agreements disclosures                
Payments received under collaboration agreement             $ 23,500  
Amount of arrangement consideration included in license and milestone fees       15,600   15,600    
Lilly | Development and Commercialization License | Exclusive license                
Collaborative Agreements disclosures                
Number of development and commercialization licenses taken | item         3      
Lilly | Development and Commercialization License | No exercise fee                
Collaborative Agreements disclosures                
Number of development and commercialization licenses taken | item         1      
Lilly | Development and Commercialization License | No exercise fee | Maximum                
Collaborative Agreements disclosures                
Potential milestone payments for each subsequent license       200,500   200,500 200,500  
Lilly | Development and Commercialization License | Exercise fee of $2 million                
Collaborative Agreements disclosures                
Number of development and commercialization licenses taken | item   2     2      
License exercise fee, per subsequent license       2,000   2,000 2,000  
Lilly | Development and Commercialization License | Exercise fee of $2 million | Maximum                
Collaborative Agreements disclosures                
Potential milestone payments for each subsequent license       199,000   199,000 199,000  
Lilly | Development and Commercialization License | Phase I clinical trial                
Collaborative Agreements disclosures                
Number of development and commercialization licenses taken | item         2      
Lilly | Development and Commercialization License | Development milestones | No exercise fee                
Collaborative Agreements disclosures                
Potential milestone payments for each subsequent license       30,500   30,500 30,500  
Lilly | Development and Commercialization License | Development milestones | Exercise fee of $2 million                
Collaborative Agreements disclosures                
Potential milestone payments for each subsequent license       29,000   29,000 29,000  
Lilly | Development and Commercialization License | Development milestones | Phase I clinical trial                
Collaborative Agreements disclosures                
Payments received under collaboration agreement $ 5,000              
Potential milestone payments for each subsequent license     $ 5,000   $ 5,000      
Lilly | Development and Commercialization License | Development milestones | Phase II clinical trial                
Collaborative Agreements disclosures                
Potential milestone payments for each subsequent license $ 9,000              
Lilly | Development and Commercialization License | Regulatory milestones                
Collaborative Agreements disclosures                
Potential milestone payments for each subsequent license       70,000   70,000 70,000  
Lilly | Development and Commercialization License | Sales milestones                
Collaborative Agreements disclosures                
Potential milestone payments for each subsequent license       $ 100,000   $ 100,000 $ 100,000  


v3.3.1.900
Collaborative Agreements - Takeda (Details)
$ in Thousands
3 Months Ended 6 Months Ended 10 Months Ended
Dec. 31, 2015
USD ($)
Mar. 31, 2015
USD ($)
item
Dec. 31, 2014
USD ($)
Dec. 31, 2015
USD ($)
Dec. 31, 2014
USD ($)
Dec. 31, 2015
USD ($)
Collaborative Agreements disclosures            
Amount of arrangement consideration included in license and milestone fees $ 10,692   $ 41,417 $ 16,762 $ 47,651  
Takeda | Development milestones            
Collaborative Agreements disclosures            
Potential milestone payments 30,000     30,000   $ 30,000
Takeda | Right-to-test agreement            
Collaborative Agreements disclosures            
Term of agreement   3 years        
Term of extension of the agreement   1 year        
Payments to be made for extension of agreement   $ 4,000        
Payments received under collaboration agreement   $ 20,000        
Takeda | Right-to-test agreement | Maximum            
Collaborative Agreements disclosures            
Number of single-target licenses | item   2        
Takeda | Right-to-test agreement | Option To Expand Agreement            
Collaborative Agreements disclosures            
Payments to be made for extension of agreement   $ 8,000        
Takeda | Development and Commercialization License            
Collaborative Agreements disclosures            
Payments received under collaboration agreement           25,900
Amount of arrangement consideration included in license and milestone fees 8,600     8,600    
Takeda | Development and Commercialization License | No exercise fee | Maximum            
Collaborative Agreements disclosures            
Potential milestone payments 210,000     210,000   210,000
Takeda | Development and Commercialization License | Phase I clinical trial            
Collaborative Agreements disclosures            
Potential milestone payments 5,000     5,000   5,000
Takeda | Development and Commercialization License | Regulatory milestones            
Collaborative Agreements disclosures            
Potential milestone payments 85,000     85,000   85,000
Takeda | Development and Commercialization License | Sales milestones            
Collaborative Agreements disclosures            
Potential milestone payments $ 95,000     $ 95,000   $ 95,000


v3.3.1.900
Liability Related to Sale of Future Royalties (Details) - USD ($)
$ in Thousands
1 Months Ended 3 Months Ended 6 Months Ended
Apr. 30, 2015
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2014
Liability Related to Sale of Future Royalties          
Royalties on net sales of Kadcyla   $ 195 $ 4,625 $ 195 $ 8,791
Percentage of royalty payments if applicable threshold is met 85.00%        
Immunity Royalty Holdings, L.P          
Liability Related to Sale of Future Royalties          
Percentage of royalty payments 100.00%        
Royalties on net sales of Kadcyla $ 235,000        
Royalties on net sales of Kadcyla when royalties to the purchaser reach a specified milestone $ 260,000        
Percentage of royalty payments if applicable threshold is met 15.00%        
Proceeds from sale of future royalties $ 200,000        
Transaction costs incurred during royalty purchase agreement $ 5,900        
Movement in Deferred Revenue [Roll Forward]          
Liability related to sale of future royalties - beginning balance       199,662  
Non cash Kadcyla royalty revenue       (11,975)  
Non cash interest expense recognized       9,621  
Liability related to sale of future royalties - ending balance   $ 197,308   $ 197,308  
Effective annual interest rate       9.70%  


v3.3.1.900
Capital Stock (Details) - USD ($)
3 Months Ended 6 Months Ended 12 Months Ended 139 Months Ended
Dec. 31, 2015
Dec. 31, 2014
Dec. 31, 2015
Dec. 31, 2014
Jun. 30, 2015
Jun. 30, 2014
Dec. 31, 2015
Stock-Based Compensation              
Compensation expense (expense reduction)     $ 10,385,000 $ 9,102,000      
2001 Director Plan | Stock options              
Stock-Based Compensation              
Compensation expense (expense reduction) $ 25,000 $ (29,000) $ (5,000) (37,000)      
Stock units issued (in shares)             0
Stock compensation expense       $ 236,000      
Compensation Policy for Non-Employee Directors | Stock options              
Stock-Based Compensation              
Vesting period     1 year        
Stock options granted to directors (in shares)         80,000 80,000  
Compensation Policy for Non-Employee Directors | Deferred share units              
Stock-Based Compensation              
Vesting period     1 year        
Stock compensation expense $ 82,000 $ 118,000 $ 164,000        


v3.3.1.900
Commitments and Contingencies (Details)
1 Months Ended 6 Months Ended
Apr. 30, 2014
USD ($)
item
Apr. 30, 2013
ft²
Dec. 31, 2015
USD ($)
Dec. 31, 2013
USD ($)
Jul. 27, 2007
ft²
Minimum rental commitments under the non-cancelable operating lease agreements          
2016 (six months remaining)     $ 3,702,000    
2017     7,444,000    
2018     7,553,000    
2019     6,745,000    
2020     6,730,000    
Thereafter     40,690,000    
Total minimum lease payments     72,864,000    
Total minimum rental payments from sublease     (310,000)    
Total minimum lease payments, net     72,554,000    
Obligations under capital leases     0    
Collaborations          
Potential milestone payable     162,000,000    
Amount reimbursable by a third party     1,400,000    
830 Winter Street, Waltham, MA          
Operating leases          
Area of space leased (in square feet) | ft²         110,000
Construction allowance receivable $ 1,100,000   $ 196,000 $ 746,000  
Number of additional terms for which lease agreement can be extended | item 2        
Additional term period for which lease agreement can be extended 5 years        
333 Providence Hwy, Norwood MA          
Operating leases          
Additional term period for which lease agreement can be extended     5 years    
100 River Ridge Drive, Norwood, MA          
Operating leases          
Area of space leased (in square feet) | ft²   7,507      
Initial lease term period   5 years 2 months      
Additional term period for which lease agreement can be extended   5 years      
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