Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Organization and operations
The Company
Genocea Biosciences, Inc. (the “Company”) is a biopharmaceutical company that was incorporated in Delaware on August 16, 2006 and has a principal place of business in Cambridge, Massachusetts. The Company seeks to discover and develop novel vaccines and immunotherapies to address diseases with significant unmet needs. The Company’s development pipeline consists of candidates discovered using ATLAS
TM
, a proprietary discovery platform which enables the identification of clinically relevant T cell antigens for novel vaccines and immunotherapies targeting infectious disease and oncology applications. ATLAS is used to rapidly design vaccines and immunotherapies that act, in part, through T cell (or cellular) immune responses, in contrast to approved vaccines and immunotherapies, which are designed to act primarily through B cell (or antibody) immune responses. The Company believes that by harnessing T cells, first-in-class vaccines and immunotherapies can be developed to address diseases where T cells are central to the control of the disease.
The Company has
one
product candidate in active Phase 2 clinical development, GEN-003, an immunotherapy for the treatment of genital herpes. The Company also has, in GEN-004, a Phase 2-ready universal vaccine for the prevention of pneumococcal infections. Although internal development of GEN-004 has been suspended, the Company is currently seeking partners to advance GEN-004 into a Phase 1/2 clinical trial targeting toddler and infant populations. The Company also has active research and pre-clinical development programs for diseases including genital herpes, chlamydia, malaria, and Epstein-Barr virus infections and related cancers, and is investigating the application of ATLAS to cancer vaccine development.
The Company is devoting substantially all of its efforts to product research and development, initial market development, and raising capital. The Company has not generated any product revenue related to its primary business purpose to date and is subject to a number of risks similar to those of other clinical stage companies, including dependence on key individuals, competition from other companies, the need for and related uncertainty associated with the development of commercially viable products, and the need to obtain adequate additional financing to fund the development of its product candidates. The Company is also subject to a number of risks similar to other companies in the life sciences industry, including regulatory approval of products, uncertainty of market acceptance of products, competition from substitute products and larger companies, the need to obtain additional financing, compliance with government regulations, protection of proprietary technology, dependence on third parties, product liability, and dependence on key individuals.
Liquidity
As of
June 30, 2016
, the Company had an accumulated deficit of approximately
$178.7 million
. The Company had cash, cash equivalents and investments of
$86.0 million
at
June 30, 2016
. On the basis of current operating plans, including the planned commencement of Phase 3 trials for GEN-003 in the second half of 2017, the Company expects that existing funds will be sufficient to fund operating expenses and capital expenditure requirements into the second half of 2017. These assumptions do not include additional capital from potential future business development activities, equity financings or debt drawdowns.
At-the-market equity offering program
On March 2, 2015, the Company entered into a Sales Agreement with Cowen and Company, LLC (the "Sales Agreement") to establish an at-the-market equity offering program (“ATM”) pursuant to which it was able to offer and sell up to
$40 million
of its Common Stock at prevailing market prices from time to time. On May 8, 2015, the Sales Agreement was amended to increase the offering amount under the ATM to
$50 million
of its Common Stock. As of
June 30, 2016
, the Company sold
136 thousand
shares and received
$0.8 million
in net proceeds after deducting commissions.
2. Summary of significant accounting policies
Basis of presentation and use of estimates
The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and the instructions of Form 10-Q and Article 10 of Regulation S-X. Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the
Financial Accounting Standards Board (“FASB”). Certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. These interim condensed financial statements, in the opinion of management, reflect all normal recurring adjustments necessary for a fair presentation of the Company’s financial position as of
June 30, 2016
and results of operations for the
three and six
months ended
June 30, 2016
and
2015
.
The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year. These interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended
December 31, 2015
and the notes thereto which are included in the Company’s Annual Report on Form 10-K, as filed with the SEC on February 17, 2016.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. On an ongoing basis, the Company’s management evaluates its estimates, which include, but are not limited to, estimates related to prepaid and accrued research and development expenses, stock-based compensation expense and reported amounts of revenues and expenses during the reported period. The Company bases its estimates on historical experience and other market-specific or other relevant assumptions that it believes to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions.
Cash, cash equivalents and investments
The Company determines the appropriate classification of its investments at the time of purchase. All liquid investments with original maturities of three months or less from the purchase date are considered to be cash equivalents. The Company’s current and non-current investments are comprised of certificates of deposit and government agency securities that are classified as available-for-sale in accordance with ASC 320, Investments—Debt and Equity Securities. The Company classifies investments available to fund current operations as current assets on its balance sheets. Investments are classified as non-current assets on the balance sheets if (i) the Company has the intent and ability to hold the investments for a period of at least one year and (ii) the contractual maturity date of the investments is greater than one year.
Available-for-sale investments are recorded at fair value, with unrealized gains or losses included in Accumulated other comprehensive income (loss) on the Company’s balance sheets. Realized gains and losses are determined using the specific identification method and are included as a component of Interest income or Interest expense, respectively. There were no realized gains or losses recognized for the six months ended June 30, 2016 and 2015.
The Company reviews investments for other-than-temporary impairment whenever the fair value of an investment is less than the amortized cost and evidence indicates that an investment’s carrying amount is not recoverable within a reasonable period of time. To determine whether an impairment is other-than-temporary, the Company considers its intent to sell, or whether it is more likely than not that the Company will be required to sell the investment before recovery of the investment’s amortized cost basis. Evidence considered in this assessment includes reasons for the impairment, the severity and the duration of the impairment and changes in value subsequent to period end. As of
June 30, 2016
, there were no investments with a fair value that was significantly lower than the amortized cost basis or any investments that had been in an unrealized loss position for a significant period.
Fair value of financial instruments
The Company is required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. ASC Topic 820,
Fair Value Measurement and Disclosures
, established a hierarchy of inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the financial instrument based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the financial instrument and are developed based on the best information available under the circumstances. The fair value hierarchy applies only to the valuation inputs used in determining the reported or disclosed fair value of the financial instruments and is not a measure of the investment credit quality. Fair value measurements are classified and disclosed in one of the following three categories:
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•
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Level 1—Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
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•
|
Level 2—Valuations based on quoted prices for similar assets or liabilities in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
|
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|
•
|
Level 3—Valuations that require inputs that reflect the Company’s own assumptions that are both significant to the fair value measurement and unobservable.
|
To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.
Financial instruments measured at fair value on a recurring basis include cash equivalents and investments (Note 3). The Company is also required to disclose the fair value of financial instruments not carried at fair value. The fair value of the Company’s debt (Note 4) is determined using current applicable rates for similar instruments as of the balance sheet dates and an assessment of the credit rating of the Company. The carrying value of the Company’s debt approximates fair value because the Company’s interest rate yield is near current market rates for comparable debt instruments. The Company’s debt is considered a Level 3 liability within the fair value hierarchy.
For the
six
months ended
June 30, 2016
, there were no transfers among Level 1, Level 2, or Level 3 categories. Additionally, there were no changes to the valuation methods utilized by the Company during the
six
months ended
June 30, 2016
.
Recently adopted accounting standards
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Standard
|
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Description
|
|
Effect on the financial statements
|
ASU 2016-09,
Compensation — Stock Compensation (Topic 718)
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In March 2016, the FASB issued ASU 2016-09, which provides for improvements to employee share-based payment accounting. The areas for simplification in this update involve several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.
ASU 2016-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016.
|
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The Company early adopted ASU 2016-09 as of June 30, 2016. In connection with the early adoption, the Company elected an accounting policy to record forfeitures as they occur. There was no financial statement impact upon adoption as the Company had estimated a forfeiture rate of zero given that most options awards vest on a monthly basis. ASU 2016-09 also provides that companies no longer record excess tax benefits or certain tax deficiencies in additional paid-in capital (APIC). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement. There was no financial statement impact of adopting this provision of the ASU as the Company is in a net operating loss (NOL) position and all excess tax benefits that exist from options previously exercised require a full valuation allowance. For the six month period ending June 30, 2016, the Company did not record an income statement benefit for excess tax benefits as a valuation allowance is also required on these amounts. As such, the adoption of this standard did not have a material impact on the financial statements.
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Recently issued accounting standards
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Standard
|
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Description
|
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Effect on the financial statements
|
ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
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The standard will replace existing revenue recognition standards and significantly expand the disclosure requirements for revenue arrangements. It may be adopted either retrospectively or on a modified retrospective basis to new contracts and existing contracts with remaining performance obligations as of the effective date.
In July 2015, the FASB affirmed its proposal to defer the effective date of the new revenue standard for all entities by one year. As a result, public business entities will be required to apply the new revenue standard to annual reporting periods beginning after December 15, 2017. The standard will become effective for us on January 1, 2018 (the first quarter of our 2018 fiscal year). Early adoption is not permitted under GAAP.
|
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At this time, the Company has not decided on which method it will use to adopt the new standard, nor has it determined the effects of the new guidelines on its results of operations and financial position. For the foreseeable future, the Company’s revenues will be limited to grants received from government agencies or nonprofit organizations. The Company is currently evaluating the method of adoption and the impact of this standard on its consolidated financial statements.
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ASU 2014-15,
Presentation of Financial Statements — Going Concern (Subtopic 205-40)
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In August 2014, the FASB issued ASU 2014-15, Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The standard requires an evaluation of whether there are conditions or events, considered in the aggregate, that raise substantial doubt about an entity’s ability to continue as a going concern. Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued.
ASU 2014-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016.
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Management has evaluated ASU 2014-15 and believes it could have an impact on the Company’s financial statement disclosures in future reporting periods. Refer to the Liquidity section in Footnote 1 for further details regarding the Company’s liquidity.
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ASU 2016-02,
Leases (Topic 842)
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In February 2016, the FASB issued ASU 2016-02, which replaces the existing lease accounting standards.
The new standard requires a dual approach for lessee accounting under which a lessee would account for leases as finance (also referred to as capital) leases or operating leases. Both finance leases and operating leases will result in the lessee recognizing a right-of-use asset and corresponding lease liability. For finance leases the lessee would recognize interest expense and amortization of the right-of-use asset and for operating leases the lessee would recognize straight-line total lease expense.
ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018.
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The Company generally does not finance purchases of equipment or other capital, but it does lease office and lab facilities. The Company is evaluating the effect that this ASU will have on its consolidated financial statements and related disclosures.
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3. Cash, cash equivalents and investments
As of
June 30, 2016
and
December 31, 2015
, cash, cash equivalents, and investments comprised funds in depository, money market accounts, U.S. treasuries, and FDIC insured certificates of deposit.
The following table presents the cash equivalents and investments carried at fair value in accordance with the hierarchy defined in Note 2 (in thousands):
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|
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Quoted prices in active markets
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Significant other observable inputs
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Significant unobservable inputs
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Total
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(Level 1)
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|
(Level 2)
|
|
(Level 3)
|
June 30, 2016
|
|
|
|
|
|
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Money market funds, included in cash equivalents
|
$
|
17,522
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|
|
$
|
17,522
|
|
|
$
|
—
|
|
|
$
|
—
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|
Investments - U.S treasuries
|
16,540
|
|
|
16,540
|
|
|
—
|
|
|
—
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|
Investments - certificates of deposit
|
51,169
|
|
|
—
|
|
|
51,169
|
|
|
—
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|
Total
|
$
|
85,231
|
|
|
$
|
34,062
|
|
|
$
|
51,169
|
|
|
$
|
—
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December 31, 2015
|
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|
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Money market funds, included in cash equivalents
|
$
|
14,207
|
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|
$
|
14,207
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|
|
$
|
—
|
|
|
$
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—
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|
U.S treasuries, included in cash equivalents
|
2,203
|
|
|
2,203
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|
|
—
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|
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—
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Investments - U.S. treasuries
|
27,924
|
|
|
27,924
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|
|
—
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|
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—
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Investments - certificates of deposit
|
61,249
|
|
|
—
|
|
|
61,249
|
|
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—
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Total
|
$
|
105,583
|
|
|
$
|
44,334
|
|
|
$
|
61,249
|
|
|
$
|
—
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Cash equivalents and investments are valued using third party pricing services or other market observable data. The pricing services utilize industry standard valuation models, including both income-based and market-based approaches and observable market inputs to determine value.
Investments at
June 30, 2016
consist of the following (in thousands):
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Contracted
Maturity
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Amortized
Cost
|
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Unrealized
Gains
|
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Unrealized
Losses
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Fair Value
|
U.S. Treasuries
|
215-365 days
|
|
$
|
16,523
|
|
|
$
|
17
|
|
|
$
|
—
|
|
|
$
|
16,540
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|
Certificates of deposit
|
6-274 days
|
|
51,169
|
|
|
—
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|
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—
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51,169
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Total
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$
|
67,692
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|
$
|
17
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|
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$
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—
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|
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$
|
67,709
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4. Long-term debt
On November 20, 2014 (the "Closing Date"), the Company entered into a loan and security agreement (the “Loan Agreement”) with Hercules Technology Growth Capital, Inc. (“Hercules”), which provided up to
$27.0 million
in debt financing in
three
separate tranches (the “2014 Term Loan”). The first tranche of
$17.0 million
was available through June 30, 2015, of which
$12.0 million
was drawn down at loan inception and for which approximately
$9.8 million
of the proceeds were used to repay all outstanding indebtedness under the previously existing
$10.0 million
loan agreement (the "2013 Term Loan"). The option to draw down the remaining
$5.0 million
under the first tranche expired unused on June 30, 2015. The second tranche of
$5.0 million
was subject to certain eligibility requirements which were achieved as of June 30, 2015 and the Company had the option to draw down the second tranche on or prior to December 15, 2015. The second tranche expired unused on December 15, 2015. The Company was not eligible to draw down the third tranche of
$5.0 million
because the Company did not achieve positive results in its Phase 2a human challenge study of GEN-004.
In December 2015, the Company amended the Loan Agreement (the "First Amendment") with Hercules. The First Amendment required the Company to draw an additional
$5.0 million
and permits the Company to draw
two
additional $5.0 million tranches. One
$5.0 million
tranche is immediately available to draw through December 15, 2016 and a second
$5.0 million
tranche is available to draw through December 15, 2016, subject to the Company demonstrating sufficient evidence of continued clinical progression of its GEN-003 product candidate and making favorable progress in applying its proprietary technology platform toward the development of novel immunotherapies with application in oncology. As of
June 30, 2016
, the second
$5.0 million
tranche is not yet available to the Company. At
June 30, 2016
,
$17.0 million
was outstanding under the amended 2014 Term Loan.
2014 Term Loan
The 2014 Term Loan had an original maturity of July 1, 2018. The eligibility requirements for the second tranche also contained an election for the Company to extend the maturity date to January 1, 2019. During the second quarter of 2015, the Company elected to extend the maturity date of the 2014 Term Loan. The maturity date of January 1, 2019 remained unchanged by the First Amendment.
Each advance accrues interest at a floating rate per annum equal to the greater of (i)
7.25%
or (ii) the sum of
7.25%
plus the prime rate minus
5.0%
. The 2014 Term Loan provided for interest-only payments until December 31, 2015, which was extended by the Company for a
six
-month period as the eligibility requirements for the second tranche were met during the second quarter of 2015. The First Amendment subsequently extended the interest-only period through June 30, 2017. Thereafter, beginning July 1, 2017, principal and interest payments will be made monthly for
18
months with a payoff schedule based upon a
30
-month amortization schedule, the original amortization term of the 2014 Term Loan. The remaining unpaid principal is due on January 1, 2019.
The 2014 Term Loan may be prepaid in whole or in part upon
seven
business days’ prior written notice to Hercules. Prepayments will be subject to a charge of
3.0%
if an advance is prepaid within
12
months following the Closing Date,
2.0%
, if an advance is prepaid between
12
and
24
months following the Closing Date, and
1.0%
thereafter. Amounts outstanding at the time of an event of default shall be payable on demand and shall accrue interest at an additional rate of
5.0%
per annum on any outstanding amounts past due. The Company is also obligated to pay an end of term charge of
4.95%
(the "End of Term Charge") of the balance drawn when the advances are repaid.
The 2014 Term Loan is secured by a lien on substantially all of the assets of the Company, other than intellectual property, provided that such lien on substantially all assets includes any rights to payments and proceeds from the sale, licensing or disposition of intellectual property. The Loan Agreement contains non-financial covenants and representations, including a financial reporting covenant, and limitations on dividends, indebtedness, collateral, investments, distributions, transfers, mergers or acquisitions, taxes, corporate changes, deposit accounts, and subsidiaries. There are no financial covenants.
Under the provisions of the 2014 Term Loan, the Company has also entered into account control agreements ("ACAs") with Hercules and certain of the Company's financial institutions in which cash, cash equivalents, and investments are held. These ACAs grant Hercules a perfected first priority security interest in the subject accounts. The ACAs do not restrict the Company's ability to utilize cash, cash equivalents, or investments to fund operations and capital expenditures unless there is an event of default and Hercules activates its rights under the ACAs.
The Loan Agreement contains a material adverse effect provision ("Material Adverse Effect") that requires all material adverse effects to be reported under the financial reporting covenant. Loan advances are subject to a representation that no event that has had or could reasonably be expected to have a Material Adverse Effect has occurred and is continuing. Under the Loan Agreement, a Material Adverse Effect means a material adverse effect upon: (i) the business, operations, properties, assets or condition (financial or otherwise) of the Company; or (ii) the ability of the Company to perform the secured obligations in accordance with the terms of the Loan Agreements, or the ability of agent or lender to enforce any of its rights or remedies with respect to the secured obligations; or (iii) the collateral or agent’s liens on the collateral or the priority of such liens. Any event that has or would reasonably be expected to have a Material Adverse Effect is an event of default under the Loan Agreement and repayment of amounts due under the Loan Agreement may be accelerated by Hercules under the same terms as an event of default.
Events of default under the Loan Agreement include failure to make any payments of principal or interest as due on any outstanding indebtedness, breach of any covenant, any false or misleading representations or warranties, insolvency or bankruptcy, any attachment or judgment on the Company’s assets of at least
$100
thousand, or the occurrence of any material default of the Company involving indebtedness in excess of
$100
thousand. If an event of default occurs, repayment of all amounts due under the Loan Agreement may be accelerated by Hercules, including the applicable prepayment charge.
The 2014 Term Loan is automatically accelerated upon a change in control wherein the Company must prepay the outstanding principal and any accrued and unpaid interest through the prepayment date, including any unpaid agent’s and lender’s fees and expenses accrued to the date of the repayment, the End of Term Charge, and a prepayment charge. If a change in control occurs, repayment of amounts due under the Loan Agreement may be accelerated by Hercules.
In connection with the 2014 Term Loan, the Company issued a common stock warrant to Hercules on November 20, 2014. The warrant is exercisable for
73,725
shares of the Company’s Common Stock (equal to
$607,500
divided by the exercise price of
$8.24
per share). The exercise price and the number of shares are subject to adjustment upon a merger event,
reclassification of the shares of Common Stock, subdivision or combination of the shares of Common Stock or certain dividends payments. The warrant is exercisable until November 20, 2019 and will be exercised automatically on a net issuance basis if not exercised prior to the expiration date and if the then-current fair market value of one share of Common Stock is greater than the exercise price then in effect. The warrant has been classified as equity for all periods it has been outstanding.
Contemporaneously with the 2014 Term Loan, the Company also entered into an equity rights letter agreement on November 20, 2014 (the “Equity Rights Letter Agreement”). Pursuant to the Equity Rights Letter Agreement, the Company issued to Hercules
223,463
shares of the Company’s Common Stock for an aggregate purchase price of approximately
$2.0 million
at a price per share equal to the closing price of the Company’s Common Stock as reported on The NASDAQ Global Market on November 19, 2014. The shares will be subject to resale limitations and may be resold only pursuant to an effective registration statement or an exemption from registration.
Additionally, under the Equity Rights Letter Agreement, Hercules has the right to participate in any one or more subsequent private placement equity financings of up to
$2.0 million
on the same terms and conditions as purchases by the other investors in each subsequent equity financing. The Equity Rights Letter Agreement, and all rights and obligations thereunder, will terminate upon the earlier of (1) such time when Hercules has purchased
$2.0 million
of subsequent equity financing securities in the aggregate and (2) the later of (a) the repayment of all indebtedness under the Loan Agreement and (b) the expiration or termination of the exercise period for the warrant issued in connection with the Loan Agreement. The Company allocated
$36 thousand
of financing costs to additional paid-in capital for issuance fees that were reimbursed to Hercules.
The Company incurred
$280 thousand
in debt financing costs related to the First Amendment, which was recorded as a debt discount and will be amortized over the remaining loan term. In connection with the issuance of the 2014 Term Loan, the Company incurred
$103 thousand
of financing costs and also reimbursed Hercules
$210 thousand
for debt financing costs, which has been recorded as a debt discount and will be amortized over the remaining loan term. The End of Term Charge is amortized ratably over the term loan period based upon the outstanding debt amount. The increase in the End of Term Charge due to the additional borrowing from the First Amendment is being amortized from the First Amendment date through maturity. The debt discount is being amortized to interest expense over the life of the 2014 Term Loan using the effective interest method. At
June 30, 2016
, the 2014 Term Loan bears an effective interest rate of
10.2%
.
As of both
June 30, 2016
and December 31, 2015, the Company had outstanding borrowings under the 2014 Term Loan of
$17.0 million
. Interest expense related to the 2014 Term Loan was
$0.4 million
and
$0.9 million
for the three and six months ended
June 30, 2016
, respectively, and
$0.3 million
and
$0.6 million
for the three and six months ended
June 30, 2015
, respectively.
Future principal payments, including the End of Term Charge, on the 2014 Term Loan are as follows (in thousands):
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|
June 30,
2016
|
2016
|
$
|
—
|
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2017
|
3,149
|
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2018
|
6,659
|
|
2019
|
8,034
|
|
Total
|
$
|
17,842
|
|
5. Commitments and contingencies
Lease commitments
In May 2016, the Company entered into a lease amendment (the "2016 Lease") for office and laboratory space currently occupied under an original lease that commenced in March 2014 and was set to expire in February 2017 (the "2014 Lease"). The 2016 Lease extends the 2014 Lease by an additional
three
years through February 2020. In June 2015, the Company signed a second operating lease for office space in the same building as the 2014 Lease, which expires in February 2017 (the "2015 Lease"). The 2015 Lease has
one
three
-year renewal period.
The minimum future lease payments under both the 2016 Lease and the 2015 Lease are as follows (in thousands):
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|
|
|
|
June 30, 2016
|
2016
|
$
|
693
|
|
2017
|
1,217
|
|
2018
|
1,208
|
|
2019
|
1,238
|
|
2020
|
207
|
|
Total
|
$
|
4,563
|
|
At
June 30, 2016
and
December 31, 2015
, the Company has an outstanding letter of credit of
$316 thousand
with a financial institution related to a security deposit for the 2016 Lease, which is secured by cash on deposit and expires on February 29, 2020. An additional unsecured deposit was required for the 2015 Lease.
Significant Contracts and Agreements
In addition to lease commitments, the Company enters into contractual arrangements that obligate it to make payments to the contractual counterparties upon the occurrence of future events. In the normal course of operations, the Company enters into license and other agreements and intends to continue to seek additional rights related to compounds or technologies in connection with its discovery, manufacturing and development programs. These agreements may require payments to be made by the Company upon the occurrence of certain development milestones and certain commercialization milestones for each distinct product covered by the licensed patents (in addition to certain royalties to be paid on marketed products or sublicense income) contingent upon the occurrence of future events that cannot be reasonably estimated.
In March 2014, the Company announced a joint research collaboration with Dana-Farber Cancer Institute to characterize anti-tumor T cell responses in melanoma patients. This collaboration extends the use of the Company's proprietary ATLAS platform for the rapid discovery of T cell antigens to cancer immunotherapy approaches. In September 2014, the Company received
$1.2 million
in the form of a grant entered into with the Bill & Melinda Gates Foundation for the identification of protective T-cell antigens for malaria vaccines. This grant provided for the continued expansion of the Company’s malaria antigen library to aid in the identification of novel protein antigens to facilitate the development of highly efficacious anti-infection malarial vaccines. The Company recognized revenue under these agreements of
$115 thousand
and
$236 thousand
for the
three and six
months ended June 30, 2015, respectively. The Company recognized revenue of
none
and
$235 thousand
for the
three and six
months ended
June 30, 2016
, respectively.
The Company relies on research institutions, contract research organizations, clinical investigators as well as clinical and commercial material manufacturers of our product candidates. Under the terms of these agreements, the Company is obligated to make milestone payments upon the achievement of manufacturing or clinical milestones defined in the contracts. In some cases, monthly service fees for project management services are charged over the duration of the arrangement. In addition, clinical and manufacturing contracts generally require reimbursement to suppliers for certain set-up, production, travel, and other related costs as they are incurred. In some manufacturing contracts, the Company also may be responsible for the payment of a reservation fee, which will equal a percentage of the expected production fees, to reserve manufacturing slots in the production timeframe. Generally, the Company is liable for actual effort expended by these organizations at any point in time during the contract through the notice period. To the extent amounts paid to a supplier exceed the milestones achieved, the Company records a prepaid asset, and to the extent milestones achieved exceed amounts billed or billable under a contract, an accrual for the estimate of services rendered is recorded.
In February 2014, the Company entered into a supply agreement with FUJIFILM Diosynth Biotechnologies U.S.A., Inc. (“Fujifilm”) for the manufacture and supply of antigens for future GEN-003 clinical trials. Under the agreement, the Company is obligated to pay Fujifilm manufacturing milestones, in addition to reimbursement of certain material production related costs. In May 2016, the Company entered into a new statement of work under the agreement with Fujifilm for the manufacture and supply of antigens for the Company's Phase 3 clinical trials. The Company incurred expenses under the agreement of
$1.1 million
and
$3.6 million
for the
three and six
months ended June 30, 2015, respectively. The Company incurred expenses under the agreement of
$0.1 million
and
$0.3 million
for the
three and six
months ended
June 30, 2016
, respectively.
Litigation
The Company is not a party to any litigation and does not have contingency reserves established for any litigation liabilities.
Refund of research and development expense
In August 2009, the Company entered into an exclusive license and collaboration agreement (the “Novavax Agreement”) with Isconova AB, a Swedish company which subsequently was acquired by Novavax, Inc. ("Novavax"). Pursuant to the agreement, Novavax granted the Company a worldwide, sublicensable, exclusive license to
two
patent families, to import, make, have made, use, sell, offer for sale and otherwise exploit licensed vaccine products containing an adjuvant which incorporates or is developed from Matrix-A, Matrix-C and/or Matrix-M technology, in the fields of HSV and chlamydia. Matrix-M is the adjuvant used in GEN-003.
The Novavax Agreement includes a research funding clause for which the Company made monthly payments to Novavax between August 2009 and March 2012 of approximately
$1.6 million
. All amounts of research funding provided were to be refunded by Novavax. After December 31, 2015, any amounts remaining due from Novavax, including accrued interest, could be received in cash upon
30
-day written notice provided by the Company. The Company provided this notice in January 2016.
The Company provided the research funding solely to benefit the supply plan for the Matrix-M adjuvant to the point that a Phase 1 clinical trial could be initiated. Because of the benefit received from the research funding payments, an assessment of Novavax's financial ability to repay the research funding at the time of the payments, along with the duration of which amounts could be outstanding, the Company concluded the initial research funding should be recorded as research and development expense at the time of payment. In February 2016, upon receipt of the
$1.6 million
refund including accrued interest, the Company recorded a gain within operating expenses on the Condensed Consolidated Statements of Operations and Comprehensive Loss.
6. Equity and net loss per share
At
June 30, 2016
, the Company has authorized
25,000,000
shares of preferred stock at
$0.001
par value per share. As of
June 30, 2016
and
December 31, 2015
, there were no shares of preferred stock issued or outstanding.
At
June 30, 2016
, the Company has authorized
175,000,000
shares of Common Stock at
$0.001
par value per share. As of
June 30, 2016
and
December 31, 2015
, there were
28,340,741
and
28,161,313
shares, respectively, of Common Stock issued. As of
June 30, 2016
and
December 31, 2015
, there were
28,334,912
and
28,151,596
shares, respectively, of Common Stock outstanding.
The Company computes basic and diluted earnings (loss) per share using a methodology that gives effect to the impact of outstanding participating securities (the “two-class method”). As the
three and six
months ended for both
June 30, 2016
and
2015
resulted in net losses, there is no income allocation required under the two-class method or dilution attributed to weighted average shares outstanding in the calculation of diluted loss per share.
As of
June 30, 2016
and
December 31, 2015
, the Company had warrants outstanding that represent the right to acquire
77,603
shares of Common Stock, of which
73,725
represented warrants issued to Hercules and
3,878
represented warrants to purchase Common Stock issued in periods prior to the Company's initial public offering ("IPO").
The following common stock equivalents, presented on an as converted basis, were excluded from the calculation of net loss per share for the periods presented, due to their anti-dilutive effect (in thousands):
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
Warrants
|
78
|
|
|
78
|
|
Outstanding options
|
3,754
|
|
|
2,760
|
|
Total
|
3,832
|
|
|
2,838
|
|
Restricted stock
During 2013, a Company director exercised stock options and received
31,092
shares of Common Stock that were subject to a Stock Restriction and Repurchase Agreement with the Company. Under the terms of the agreement, shares of Common Stock issued are subject to a vesting schedule and unvested shares are subject to repurchase by the Company. Vesting occurs periodically at specified time intervals and specified percentages. All shares of Common Stock become fully vested within
four years
of the date of grant.
As of both
June 30, 2016
and
December 31, 2015
, the Company had issued
35,964
shares of restricted Common Stock. The Company had
5,829
and
9,717
shares of nonvested restricted stock that were subject to repurchase by the Company as of
June 30, 2016
and
December 31, 2015
, respectively.
7. Stock and employee benefit plans
Stock-based compensation expense
Total stock-based compensation expense is recognized for stock options granted to employees and non-employees and has been reported in the Company’s statements of operations as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
Research and development
|
$
|
343
|
|
|
$
|
450
|
|
|
$
|
806
|
|
|
$
|
865
|
|
General and administrative
|
588
|
|
|
581
|
|
|
1,188
|
|
|
1,081
|
|
Total
|
$
|
931
|
|
|
$
|
1,031
|
|
|
$
|
1,994
|
|
|
$
|
1,946
|
|
Stock options
The following table summarizes stock option activity for employees and nonemployees (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term (years)
|
|
Aggregate
Intrinsic
Value
|
Outstanding at December 31, 2015
|
2,723
|
|
|
$
|
7.60
|
|
|
7.61
|
|
$
|
2,840
|
|
Granted
|
1,311
|
|
|
$
|
3.38
|
|
|
|
|
|
|
Exercised
|
(12
|
)
|
|
$
|
2.45
|
|
|
|
|
|
|
Canceled
|
(268
|
)
|
|
$
|
8.05
|
|
|
|
|
|
|
Outstanding at June 30, 2016
|
3,754
|
|
|
$
|
6.11
|
|
|
7.78
|
|
$
|
2,495
|
|
Exercisable at June 30, 2016
|
1,676
|
|
|
$
|
6.02
|
|
|
6.29
|
|
$
|
1,504
|
|
Vested or expected to vest at June 30, 2016
|
3,754
|
|
|
$
|
6.11
|
|
|
7.78
|
|
$
|
2,495
|
|
Performance-based stock options
The Company granted stock options to certain employees, executive officers and consultants, which contain performance-based vesting criteria. Milestone events are specific to the Company’s corporate goals, which include, but are not
limited to, certain clinical development milestones, business development agreements and capital fundraising events. Stock-based compensation expense associated with these performance-based stock options is recognized if the performance conditions are considered probable of being achieved, using management’s best estimates. The Company determined that none of the performance-based milestones were probable of achievement during the
three and six
months ended
June 30, 2016
, and accordingly did not recognize stock-based compensation expense for these periods. As of
June 30, 2016
, there are
56,336
performance-based common stock options outstanding for which the probability of achievement was not deemed probable.
Employee stock purchase plan
In connection with the completion of the Company's IPO on February 10, 2014, the Company’s Board of Directors adopted the 2014 Employee Stock Purchase Plan (the “2014 ESPP”). The 2014 ESPP authorizes the initial issuance of up to a total of
200,776
shares of Common Stock to participating eligible employees. The 2014 ESPP provides for
six
-month option periods commencing on January 1 and ending June 30 and commencing July 1 and ending December 31 of each calendar year. As of June 30, 2016,
112,073
shares remain for future issuance under the plan. The Company incurred stock-based compensation expense related to the 2014 ESPP of
$31 thousand
and
$64 thousand
for the
three and six
months ended
June 30, 2016
, respectively, and
$26 thousand
and
$53 thousand
for the
three and six
months ended
June 30, 2015
, respectively.