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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
(Mark One)
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020
 
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                  to                
 
Commission file number: 001-35867
 
CHIMERIX, INC.
(Exact Name of Registrant as Specified in Its Charter)  
Delaware 33-0903395
(State or Other Jurisdiction of Incorporation or Organization) (I.R.S. Employer Identification No.)
  
2505 Meridian Parkway, Suite 100
  
Durham, North Carolina
 27713
(Address of Principal Executive Offices) (Zip Code)
 
(919) 806-1074
(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareCMRXThe Nasdaq Global Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes x   No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer  o
 
Accelerated filer
Non-accelerated filer ☐ 
Smaller reporting company 
 
Emerging growth company 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No x
 
As of July 31, 2020, the number of outstanding shares of the registrant’s common stock, par value $0.001 per share, was 62,187,734.



CHIMERIX, INC.
 
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2020
 
INDEX
  
 Page
 
 


2



PART I - FINANCIAL INFORMATION
 
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
 
CHIMERIX, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
(unaudited) 
 June 30, 2020December 31, 2019
ASSETS  
Current assets:  
Cash and cash equivalents$53,501  $16,901  
Short-term investments, available-for-sale42,449  96,574  
Accounts receivable367  1,233  
Prepaid expenses and other current assets2,578  3,385  
Total current assets98,895  118,093  
Property and equipment, net of accumulated depreciation338  540  
Operating lease right-of-use assets2,414  709  
Other long-term assets26  34  
Total assets$101,673  $119,376  
LIABILITIES AND STOCKHOLDERS' EQUITY  
Current liabilities:  
Accounts payable$1,425  $2,398  
Accrued liabilities4,811  6,830  
Total current liabilities6,236  9,228  
Lease-related obligations2,302  196  
Total liabilities8,538  9,424  
Stockholders’ equity:  
Preferred stock, $0.001 par value, 10,000,000 shares authorized at June 30, 2020 and December 31, 2019; no shares issued and outstanding as of June 30, 2020 and December 31, 2019
    
Common stock, $0.001 par value, 200,000,000 shares authorized at June 30, 2020 and December 31, 2019; 62,172,418 and 61,590,013 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively
62  62  
Additional paid-in capital782,217  778,693  
Accumulated other comprehensive gain, net130  35  
Accumulated deficit(689,274) (668,838) 
Total stockholders’ equity93,135  109,952  
Total liabilities and stockholders’ equity$101,673  $119,376  
 
The accompanying notes are an integral part of the consolidated financial statements.



3



CHIMERIX, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(in thousands, except share and per share data)
(unaudited)
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Revenues:
Contract revenue$1,396  $1,438  $2,567  $3,794  
Licensing revenue6    76    
Total revenues1,402  1,438  2,643  3,794  
Operating expenses:    
Research and development8,578  13,827  17,527  27,342  
General and administrative3,110  6,312  6,315  13,998  
Total operating expenses11,688  20,139  23,842  41,340  
Loss from operations(10,286) (18,701) (21,199) (37,546) 
Other income:
Interest income and other, net270  1,051  763  2,203  
Net loss(10,016) (17,650) (20,436) (35,343) 
Other comprehensive loss:    
Unrealized gain on debt investments, net141  77  95  217  
Comprehensive loss$(9,875) $(17,573) $(20,341) $(35,126) 
Per share information:    
Net loss, basic and diluted$(0.16) $(0.35) $(0.33) $(0.69) 
Weighted-average shares outstanding, basic and diluted62,042,778  51,130,104  61,892,407  51,009,935  
  
The accompanying notes are an integral part of the consolidated financial statements.

 
4



CHIMERIX, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(in thousands)
(unaudited) 
Common
Stock
Additional
Paid-in Capital
Accumulated Other
Comprehensive
Gain (Loss)
Accumulated
Deficit
Total 
Stockholders’
Equity (Deficit)
Balance, December 31, 2019$62  $778,693  $35  $(668,838) $109,952  
Share-based compensation—  1,326  —  —  1,326  
Employee stock purchase plan purchases—  229  —  —  229  
Comprehensive loss:
Unrealized loss on investments, net—  —  (46) —  (46) 
Net loss—  —  —  (10,420) (10,420) 
Total comprehensive loss(10,466) 
Balance, March 31, 2020$62  $780,248  $(11) $(679,258) $101,041  
Share-based compensation—  1,391  —  —  1,391  
Exercise of stock options—  578  —  —  578  
Comprehensive loss:
Unrealized gain on investments, net—  —  141  —  141  
Net loss—  —  —  (10,016) (10,016) 
Total comprehensive loss(9,875) 
Balance, June 30, 2020$62  $782,217  $130  $(689,274) $93,135  

5



Common
Stock
Additional
Paid-in Capital
Accumulated Other
Comprehensive
Gain (Loss)
Accumulated
Deficit
Total 
Stockholders’
Equity (Deficit)
Balance, December 31, 2018$51  $733,907  $(92) $(556,262) $177,604  
Share-based compensation—  4,073  —  —  4,073  
Exercise of stock options—  13  —  —  13  
Employee stock purchase plan purchases—  170  —  —  170  
Comprehensive loss:
Unrealized gain on investments, net—  —  140  —  140  
Net loss—  —  —  (17,693) (17,693) 
Total comprehensive loss(17,553) 
Balance, March 31, 2019$51  $738,163  $48  $(573,955) $164,307  
Share-based compensation—  2,367  —  —  2,367  
Exercise of stock options—  17  —  —  17  
Comprehensive loss:
Unrealized gain on investments, net—  —  77  —  77  
Net loss—  —  —  (17,650) (17,650) 
Total comprehensive loss(17,573) 
Balance, June 30, 2019$51  $740,547  $125  $(591,605) $149,118  

6



CHIMERIX, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited) 
 Six Months Ended June 30,
 20202019
Cash flows from operating activities:  
Net loss$(20,436) $(35,343) 
Adjustments to reconcile net loss to net cash used in operating activities:
  
Depreciation of property and equipment216  306  
Amortization of discount/premium on investments(277) (1,205) 
Share-based compensation 2,717  6,440  
Unrealized loss on equity investment  30  
Lease-related amortization(43) (36) 
Changes in operating assets and liabilities:  
Accounts receivable866  (444) 
Prepaid expenses and other assets809  399  
Accounts payable and accrued liabilities(2,546) 302  
Net cash used in operating activities(18,694) (29,551) 
Cash flows from investing activities:  
Purchases of property and equipment(11) (150) 
Purchases of short-term investments(27,652) (107,149) 
Proceeds from sales of short-term investments1,498    
Proceeds from maturities of short-term investments80,652  77,210  
Net cash provided by (used in) investing activities54,487  (30,089) 
Cash flows from financing activities:  
Proceeds from exercise of stock options578  30  
Proceeds from employee stock purchase plan229  171  
Payments of deferred offering costs  (23) 
Net cash provided by financing activities807  178  
Net increase (decrease) in cash and cash equivalents36,600  (59,462) 
Cash and cash equivalents:
Beginning of period16,901  81,106  
End of period$53,501  $21,644  
 
The accompanying notes are an integral part of the consolidated financial statements.

 
 
7



CHIMERIX, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
 
Note 1. The Business and Summary of Significant Accounting Policies
 
Description of Business

Chimerix, Inc. (the Company) is a development-stage biopharmaceutical company dedicated to accelerating the advancement of innovative medicines that make a meaningful impact in the lives of patients living with cancer and other serious diseases. The Company has two clinical-stage product candidates, dociparstat sodium (DSTAT) and brincidofovir (BCV). Dociparstat sodium is a potential first-in-class glycosaminoglycan compound derived from porcine heparin with known anti-inflammatory properties, but is designed to substantially reduce the risk of bleeding complications compared to commercially available forms of heparin. DSTAT is in development as a potential first-line therapy in acute myeloid leukemia (AML). DSTAT is also being developed as a potential treatment for acute lung injury (ALI) in COVID-19 patients. DSTAT has the potential to inhibit several potentially key molecular drivers of COVID-19 pathology, including HMGB1, PF4 and P-selectin. DSTAT may effectively reduce the excessive inflammation and coagulation seen in COVID-19 via multiple mechanisms while mitigating the risk of severe bleeding events presented by fully anticoagulant forms of heparin. BCV is an investigational lipid conjugate that inhibits a viral DNA polymerase that is in development as a medical countermeasure for smallpox. The Company expects to continue its evaluation of external innovation in order to license, acquire or otherwise gain access to molecules that further broaden its pipeline of investigational agents in cancer or other serious diseases.

Basis of Presentation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements and should be read in conjunction with the Company’s audited financial statements and notes thereto included in its Annual Report on Form 10-K for the year ended December 31, 2019. In the opinion of the Company’s management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of its financial position, operating results and cash flows for the periods presented have been included. Operating results for the three and six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the full year, for any other interim period or for any future year. 

Reclassifications

Certain prior period amounts in the accompanying consolidated financial statements have been reclassified to conform to the current year presentation. These reclassifications had no effect on previously reported net income or stockholders' equity (deficit).
 
Fair Value of Financial Instruments

The carrying amounts of certain financial instruments, including accounts receivable, accounts payable and accrued expenses approximate their fair values due to the short-term nature of such instruments.
 
For assets and liabilities recorded at fair value, it is the Company’s policy to maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements, in accordance with the fair value hierarchy. Fair value measurements for assets and liabilities where there exists limited or no observable market data are based primarily upon estimates and are often calculated based on the economic and competitive environment, the characteristics of the asset or liability and other factors. Therefore, fair value measurements cannot be determined with precision and may not be realized in an actual sale or immediate settlement of the asset or liability. Additionally, there may be inherent weaknesses in any calculation technique and changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the calculated current or future fair values. The Company utilizes fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.
 
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The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The determination of where an asset or liability falls in the hierarchy requires significant judgment. These levels are:
 
Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access.
Level 2 — Valuations based on quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and models for which all significant inputs are observable, either directly or indirectly.
Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

At June 30, 2020 and December 31, 2019, the Company had cash equivalents including money market funds, whose value is based on quoted market prices. At June 30, 2020 and December 31, 2019, the Company had short term investments, including U.S. Treasury securities, whose value is based on quoted market prices. Accordingly, these securities are classified as Level 1.
 
At June 30, 2020 and December 31, 2019, the Company had short-term investments, including commercial paper and corporate bonds. As quoted prices are not available for these securities, they are valued using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Accordingly, these securities are classified as Level 2.
 
There was no material re-measurement to fair value of financial assets and liabilities that are not measured at fair value on a recurring basis. For additional information regarding the Company's investments, please refer to Note 2, "Investments."
 
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Below are tables that present information about certain assets measured at fair value on a recurring basis (in thousands):
 
Fair Value Measurements
June 30, 2020
 TotalQuoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Cash equivalents
     Money market funds$48,938  $48,938  $  $  
          Total cash equivalents48,938  48,938      
Short-term investments
     U.S. treasury securities6,021  6,021      
     Commercial paper18,594    18,594    
     Corporate bonds17,834    17,834    
          Total short-term investments42,449  6,021  36,428    
               Total assets$91,387  $54,959  $36,428  $  
Fair Value Measurements
December 31, 2019
 TotalQuoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable Inputs
(Level 3)
Cash equivalents
     Money market funds$11,854  $11,854  $  $  
          Total cash equivalents11,854  11,854      
Short-term investments
     U.S. treasury securities22,493  22,493      
     Commercial paper43,119    43,119    
     Corporate bonds30,962    30,962    
          Total short-term investments96,574  22,493  74,081    
               Total assets$108,428  $34,347  $74,081  $  
  
Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):
June 30, 2020December 31, 2019
Accrued research and development expenses$1,736  $1,868  
Accrued compensation2,271  3,626  
Other accrued liabilities804  1,336  
Total accrued liabilities$4,811  $6,830  

Revenue Recognition

Policy

The Company’s revenues generally consist of (i) contract revenue - revenue generated under federal contracts, and (ii) collaboration and licensing revenue - revenue related to non-refundable upfront fees, royalties and milestone payments earned under license agreements. Revenue is recognized in accordance with the criteria outlined in Accounting Standards Codification (ASC) 606 issued by the Financial Accounting Standards Board (FASB). Following this accounting pronouncement, a five-step approach is applied for recognizing revenue, including (1) identify the contract with a customer; (2) identify the performance
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obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies a performance obligation.

Biomedical Advanced Research and Development Authority (BARDA)

In February 2011, the Company entered into a contract with BARDA for the advanced development of BCV as a medical countermeasure in the event of a smallpox release. Under the contract, the Company may receive up to $75.8 million in expense reimbursement and $5.3 million in fees over the performance of 1 base segment and 4 option segments. Exercise of each option segment is solely at the discretion of BARDA. The Company assessed the services in accordance with the authoritative guidance and concluded that there is a potential of 5 separate contracts (1 base segment and 4 option segments) within this agreement, each of which has a single performance obligation. At present, all options segments (1 through 4) have been exercised, as well as the base segment. The transaction price for each segment, based on the transaction price as defined in each segment contract, is allocated to the single performance obligation for each contract. The transaction price is recognized over time by measuring the progress toward complete satisfaction of the performance obligation. For reimbursable expenses, this occurs as qualifying research activities are conducted based on invoices from company vendors. For the fixed fee, the progress toward complete satisfaction is estimated based on the costs incurred to date relative to the total estimated costs per the terms of each contract. The Company typically invoices BARDA monthly as costs are incurred. Any amounts received in advance of performance are recorded as deferred revenue until earned. The base segment and first option segment were completed prior to adoption of ASC 606. The Company is currently performing under the second, third and fourth option segments of the contract during which the Company may receive up to a total of $23.9 million, $14.1 million and $4.6 million in expense reimbursement and fees, respectively. The second and third option segments are scheduled to end on August 20, 2020. The fourth option segment is scheduled to end on February 15, 2021.

SymBio Pharmaceuticals

On September 30, 2019, the Company entered into a license agreement with SymBio Pharmaceuticals Limited (SymBio) under which the Company granted SymBio exclusive worldwide rights to develop, manufacture and commercialize BCV for all human indications, excluding the prevention and treatment of orthopoxviruses, including smallpox. The Company assessed the agreement in accordance with the authoritative guidance and concluded that the SymBio contract includes multiple performance obligations. The SymBio contract has one fixed transaction amount of a $5.0 million upfront payment received in October 2019 and several variable transaction amounts, up to $180 million, due to the Company at certain regulatory and commercial milestones, along with low double-digit percent royalties based on net sales of BCV. All variable transaction amounts are fully constrained, therefore the allocated transaction price is $5.0 million. The majority of the transaction price of the contract has been allocated to the combined performance obligation of the granting of the license to BCV and associated technology transfer which was recognized when the technology transfer was completed in the fourth quarter of 2019. The revenue from regulatory and commercial milestones and royalties from net sales will be recognized upon the occurrence of the triggering events or when those transaction amounts are no longer fully constrained.
 
Research and Development Prepaids and Accruals

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

The Company’s objective is to reflect the appropriate research and development expenses in its financial statements by matching those expenses with the period in which services and efforts are expended. The Company accounts for these expenses according to the progress of its research and development efforts. The Company determines prepaid and accrual estimates through discussion with applicable personnel and outside service providers as to the progress or state of communication of clinical trials, or other services completed. The Company adjusts its rate of research and development expense recognition if actual results differ from its estimates. The Company makes estimates of its prepaid and accrued expenses as of each balance sheet date in its financial statements based on facts and circumstances known at that time. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of status and timing of services performed relative to the actual status and timing of services performed may vary and may result in the Company reporting amounts that are too high or too low for any particular period. Through June 30, 2020, there had been no material adjustments to the Company’s prior period estimates of prepaid and accruals for research and development expenses. The Company’s research and development prepaids and accruals are dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors.
 
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Basic and Diluted Net Loss Per Share of Common Stock 

Basic net loss per share of common stock is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period, excluding the dilutive effects of non-vested restricted stock, stock options, and employee stock purchase plan purchase rights. Diluted net loss per share of common stock is computed by dividing net loss by the sum of the weighted-average number of shares of common stock outstanding during the period plus the potential dilutive effects of non-vested restricted stock, stock options, and employee stock purchase plan purchase rights outstanding during the period calculated in accordance with the treasury stock method, but are excluded if their effect is anti-dilutive. Because the impact of these items is anti-dilutive during the periods of net loss, there was no difference between basic and diluted loss per share of common stock for the three and six months ended June 30, 2020 and 2019.

Impact of Recently Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which amends the impairment model by requiring entities to use a forward-looking approach on expected losses to estimate credit losses on certain financial instruments, including trade receivables and available-for-sale debt securities. The new guidance was originally due to become effective for the Company beginning in the first quarter of 2020, however the FASB in November 2019 issued ASU 2019-10 which moved the effective date for smaller reporting companies to the first quarter of 2023. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial statements.

Note 2. Investments
 
The following tables summarize the Company's debt investments (in thousands):
 June 30, 2020
 Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Corporate bonds$17,767  $66  $  $17,833  
U.S. treasury securities5,999  23    6,022  
Commercial paper18,553  41    18,594  
Total investments$42,319  $130  $  $42,449  
 December 31, 2019
 Amortized CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
Corporate bonds$30,952  $19  $(9) $30,962  
Commercial paper43,109  14  (4) 43,119  
U.S. treasury securities22,478  17  (2) 22,493  
Total investments$96,539  $50  $(15) $96,574  
 
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The following tables summarize the Company's debt investments with unrealized losses, aggregated by investment type and the length of time that individual investments have been in a continuous unrealized loss position (in thousands, except number of securities):

At June 30, 2020 there were no debt investments with unrealized losses.
December 31, 2019
Less than 12 MonthsGreater than 12 MonthsTotal
Fair ValueUnrealized LossFair ValueUnrealized LossFair ValueUnrealized Loss
Corporate bonds$9,657  $(9) $  $  $9,657  $(9) 
Commercial paper10,147  (4)     10,147  (4) 
U.S. treasury securities2,994  (2)     2,994  (2) 
Total$22,798  $(15) $  $  $22,798  $(15) 
Number of securities with unrealized losses9    9  

The Company periodically reviews available-for-sale debt investments for other-than-temporary declines in fair value below the cost basis and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. The Company evaluates, among other things, the duration and extent to which the fair value of a security is less than its cost; the financial condition of the issuer and any changes thereto; and the Company’s intent to sell, or whether it will more likely than not be required to sell, the security before recovery of its cost basis. At June 30, 2020, the Company had no available-for-sale debt investments in an unrealized loss position. There were no such declines in value for the three and six months ended June 30, 2020 and 2019. Unrealized gains and losses on debt investments are recorded to unrealized (loss) gain on debt investments, net in the Consolidated Statements of Operations and Comprehensive Loss. The Company recognizes interest income on an accrual basis in interest income in the Consolidated Statements of Operations and Comprehensive Loss.

The following table summarizes the scheduled maturity for the Company's debt investments at June 30, 2020 (in thousands):
Maturing in one year or less$42,449  
Maturing after one year through two years  
     Total debt investments$42,449  
 
Note 3. Commitments and Contingencies
 
Leases

The Company leases its facilities under long-term operating leases that expire at various dates through 2026. The Company generally has options to renew lease terms on its facilities, which may be exercised at the Company's sole discretion. In addition, certain lease arrangements may be terminated prior to their original expiration date at the Company's discretion. The Company evaluates renewal and termination options at the lease commencement date to determine if it is reasonably certain to exercise the option and has concluded on all operating leases that it is not reasonably certain that any options will be exercised. The weighted-average remaining lease term for the Company's operating leases as of June 30, 2020 was 5.67 years.

Expense related to leases is recorded on a straight-line basis over the lease term. Lease expense under operating leases, including common area maintenance fees, totaled approximately $173,000 and $182,000, respectively, for the three months ended June 30, 2020 and 2019, and $366,000 and $376,000 for the six months ended June 30, 2020 and 2019, respectively.

The discount rate implicit within the Company's leases is generally not determinable and therefore the Company determines the discount rate based on its incremental borrowing rate based on the information available at commencement date. As of June 30, 2020, the operating lease liabilities reflect a weighted-average discount rate of 8.28%.

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The following table sets forth the operating lease right-of-use assets and liabilities as of June 30, 2020 (in thousands):
Assets
Operating lease right-of-use assets $2,414  
Liabilities
Operating lease short-term liabilities (recorded within Accrued liabilities)$189  
Operating lease long-term liabilities (recorded within Lease-related obligations)2,302  
     Total operating lease liabilities$2,491  

Operating lease payments over the remainder of the lease terms are as follows (in thousands):
Years Ending December 31,As of June 30, 2020
2020$362  
2021 (1)191  
2022546  
2023562  
2024580  
All remaining years955  
Total future minimum rental payments$3,196  
     Less amount of lease payments representing interest705  
Total present value of lease payments$2,491  

(1)The Company entered into the Ninth Amendment of its lease for the Company's headquarters in Durham, NC, which extended the term of the lease 65 months to July 31, 2026. As part of the amendment, the Company will receive a rent abatement of the first 5 months of the new lease term which begins on March 1, 2021. Additionally, the Ninth Amendment grants the Company a refurbishment allowance, which the Company expects to receive in 2021 after the refurbishment has been completed.

As of December 31, 2019, operating lease payments over the remainder of the lease terms were as follows (in thousands):
Years Ending December 31,As of December 31, 2019
2020$719  
2021182  
Total future minimum rental payments$901  
     Less amount of lease payments representing interest66  
Total present value of lease payments$835  

For the three months ended June 30, 2020 and 2019, the Company made lease payments of approximately $180,000 and $194,000, respectively, and for the six months ended June 30, 2020 and 2019, the Company made lease payments of approximately $357,000 and $386,000, respectively, which are included in operating cash flows.

Sublease

The Company subleases 3,537 square feet of its office space under a non-cancelable operating lease that expires in February 2021. For the three and six months ended June 30, 2020 and 2019, the Company recognized approximately $18,000 and $35,000 of income in Interest income and other, net on the Consolidated Statement of Operations and Comprehensive Loss. Total future minimum rentals under the non-cancelable operating sublease are presented below (in thousands):
Years Ending December 31,As of June 30, 2020
2020$41  
202114  
     Total future minimum sublease rentals$55  

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Significance of Revenue Source

The Company is the recipient of federal research contract funds from BARDA, the sole source of the Company's contract revenue. Periodic audits are required under the Company’s BARDA agreement and certain costs may be questioned as appropriate under the BARDA agreement. Management believes that such amounts in the current year, if any, are not significant. Accordingly, no provision for refundable amounts under the BARDA agreement had been made as of June 30, 2020 and December 31, 2019.
 
Note 4. Equity Transactions and Share-based Compensation

Stock Options

The Company maintains a 2013 Equity Incentive Plan (the 2013 Plan), which provides for the grant of incentive stock options (ISOs), non-statutory stock options (NSOs), stock appreciation rights, restricted stock awards, restricted stock unit (RSU) awards, performance-based stock awards, and other forms of equity compensation (collectively, stock awards), all of which may be granted to employees, including officers, non-employee directors and consultants of the Company and its affiliates. Additionally, the 2013 Plan provides for the grant of performance cash awards. The number of shares of common stock reserved for future issuance automatically increases on January 1 of each calendar year by 4% of the total number of shares of capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by the Company’s board of directors. On January 1, 2020, the common stock reserved for issuance under the 2013 Plan was automatically increased by 2.5 million shares. As of June 30, 2020, there was a total of 2.9 million shares reserved for future issuance under the 2013 Plan. The Company issued 242,000 shares of common stock pursuant to the exercise of stock options during each of the three and six months ended June 30, 2020. The Company issued approximately 6,000 and 14,000 shares of common stock pursuant to the exercise of stock options during the three and six months ended June 30, 2019, respectively.

Employee Stock Purchase Plan

The Company maintains a 2013 Employee Stock Purchase Plan (ESPP), which provides for the issuance of shares of common stock pursuant to purchase rights granted to the Company’s employees or to employees of any of its designated affiliates. The Company has reserved a total of 3.5 million shares of common stock to be purchased under the ESPP, of which 2.6 million shares remained available for purchase as of June 30, 2020. The number of shares of common stock reserved for issuance automatically increases on January 1 of each calendar year, by the lesser of (a) 1% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, (b) 422,535 shares, or (c) a number determined by the Company’s board of directors that is less than (a) and (b). On January 1, 2020, the common stock reserved for issuance under the ESPP was automatically increased by an additional 422,535 shares.

The ESPP provides for an automatic reset feature to start participants on a new twenty-four month participation period in the event that the common stock market value on a purchase date is less than the common stock value on the first day of the twenty-four month offering period. Eligible employees may authorize an amount up to 15% of their salary to purchase common stock at the lower of a 15% discount to the beginning price of their offering period or a 15% discount to the ending price of each six-month purchase interval. The Company issued approximately 177,000 and 113,000 shares of common stock pursuant to the ESPP during the six months ended June 30, 2020 and 2019, respectively. Compensation expense for shares purchased under the ESPP related to the purchase discount and the “look-back” option and were determined using a Black-Scholes option pricing model.

Restricted Stock Units

The Company has issued RSUs to certain employees which vest based on service criteria. When vested, the RSU represents the right to be issued the number of shares of the Company's common stock that is equal to the number of RSUs granted. The grant date fair value for RSUs is based upon the market price of the Company's common stock on the date of the grant. The fair value is then amortized to compensation expense over the requisite service period or vesting term. The Company issued no shares and approximately 163,000 shares of common stock pursuant to the vesting of RSUs during each of the three and six months ended June 30, 2020. The Company issued approximately 201,000 and 369,000 shares of common stock pursuant to the vesting of RSUs during the three and six months ended June 30, 2019, respectively.

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Stock-based Compensation

For awards with only service conditions and graded-vesting features, the Company recognizes compensation expense on a straight-line basis over the requisite service period. Total share-based compensation expense recognized related to stock options, the ESPP and RSUs was as follows (in thousands): 
 Three Months Ended June 30,Six Months Ended June 30,
 2020201920202019
Research and development expense$725  $1,000  $1,465  $2,270  
General and administrative expense666  1,367  1,252  4,170  
          Total share-based compensation expense$1,391  $2,367  $2,717  $6,440  

Compensation expense for the six months ended June 30, 2019 includes $1.8 million of share-based compensation expense related to the accelerated vesting and modification of stock options and RSUs of the Company's then President and CEO in connection with her severance agreement.

Related to the Company's reduction in workforce that occurred in May 2019, compensation expense for the three and six months ended June 30, 2019 includes $0.7 million of share-based compensation expense related to the accelerated vesting and modifications of stock options and RSUs.

Note 5. Income Taxes
 
The Company estimates an annual effective tax rate of 0% for the year ending December 31, 2020 as the Company incurred losses for the six month period ended June 30, 2020, and is forecasting an estimated net loss for both financial statement and tax purposes for the year ending December 31, 2020. Therefore, no federal or state income taxes are expected and none have been recorded at this time. Income taxes have been accounted for using the liability method in accordance with FASB ASC 740.

Due to the Company's history of losses since inception, there is not enough evidence at this time to support that the Company will generate future income of a sufficient amount and nature to utilize the benefits of its net deferred tax assets. Accordingly, the deferred tax assets have been reduced by a full valuation allowance, since the Company cannot currently support that realization of its deferred tax assets is more likely than not. However, the Company feels its deferred tax assets may be used upon the Company becoming profitable.
 
At June 30, 2020, the Company had no unrecognized tax benefits that would reduce the Company’s effective tax rate if recognized.

Note 6. Significant Agreements
     
Biomedical Advanced Research and Development Authority (BARDA)

In February 2011, the Company entered into a contract with BARDA for the advanced development of BCV as a medical countermeasure in the event of a smallpox release. Under the contract, BARDA will reimburse the Company, plus pay a fixed fee, for the research and development of BCV as a broad-spectrum therapeutic antiviral for the treatment of smallpox infections. The contract consists of an initial performance period, referred to as the base performance segment, plus up to four extension periods, referred to as option segments, of which all have been exercised. Under the contract as currently in effect, the Company may receive up to $75.8 million in expense reimbursement and $5.3 million in fees.

The Company is currently performing under the second, third and fourth option segments of the contract during which the Company may receive up to a total of $23.9 million, $14.1 million and $4.6 million in expense reimbursement and fees, respectively. The second and third option segments are scheduled to end on August 20, 2020. The fourth option segment is scheduled to end on February 15, 2021. Of the $75.8 million in expense reimbursement and $5.3 million in fees that the Company may receive, approximately $78.9 million in expense reimbursement and fees has been awarded. As of June 30, 2020, of the total funding the Company had invoiced an aggregate of $72.6 million with respect to the base performance segment and the four option segments. For the three months ended June 30, 2020 and 2019, the Company recognized revenue under this contract of $1.4 million and $1.4 million, respectively, and for the six months ended June 30, 2020 and 2019, the Company recognized revenue under this contract of $2.6 million and $3.8 million, respectively.

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Cantex Pharmaceuticals, Inc.

On July 26, 2019, the Company entered into a License and Development Agreement with Cantex Pharmaceuticals, Inc. (Cantex) pursuant to which the Company acquired exclusive worldwide rights to develop and commercialize, for any and all uses, a glycosaminoglycan compound known as DSTAT, which is currently being studied for the treatment of acute myeloid leukemia and acute lung injury in patients with COVID-19. Under the terms of the license agreement, the Company will be responsible for, and bear the future costs of, worldwide development and commercialization of DSTAT. In connection with the transaction, Cantex assigned to the Company all of its rights under its DSTAT supply agreements, including its bulk API agreement with Scientific Protein Laboratories LLC (SPL), pursuant to which SPL will exclusively produce DSTAT for the Company through October 2030.

In consideration for the license rights, the Company made an upfront cash payment of $30.0 million to Cantex and issued to Cantex 10.0 million shares of its common stock. During 2019, the Company recognized $65.0 million of acquired in-process research and development expenses for the $30.0 million upfront cash payment, the fair value of the 10.0 million shares of common stock issued to Cantex and $0.1 million of transaction costs. The license agreement obligates the Company to pay Cantex regulatory milestone payments of up to $202.5 million upon receipt of product approvals in the United States, the European Union and Japan, and sales milestone payments of up to $385.0 million upon achievement of specified net sales levels. The Company also agreed to pay Cantex tiered royalties based on percentages of net sales beginning at 10% and not to exceed the high-teens.

SymBio Pharmaceuticals

On September 30, 2019, the Company entered into a license agreement with SymBio under which the Company granted SymBio exclusive worldwide rights to develop, manufacture and commercialize BCV for all human indications, excluding the prevention and treatment of orthopoxviruses, including smallpox. Under the terms of the license agreement, SymBio will be responsible for, and bear the future costs of, worldwide development and commercialization of BCV in the licensed indications. Either party may terminate the license agreement upon the occurrence of a material breach by the other party (subject to standard cure periods). SymBio may also terminate the license agreement without cause on a country-by-country basis upon ninety days' prior notice.

In exchange for the license to SymBio under the Company's BCV rights, the Company received an upfront payment of $5.0 million in October 2019. In addition, the Company is eligible to receive up to $180.0 million in clinical, regulatory and commercial milestones worldwide, as well as low double-digit percent royalties based on net sales of BCV. Since entering into the license agreement in September 2019, the Company has recognized substantially all of the $5.0 million upfront payment.

University of Michigan

In 2006, the Company entered into a license agreement with The Regents of the University of Michigan (UM) under which the Company obtained an exclusive, worldwide license to UM’s patent rights in certain inventions (UM Patent Rights) related to certain compounds originally synthesized at UM. Under the license agreement, the Company is permitted to research, develop, manufacture and commercialize products utilizing the UM Patent Rights, and to sublicense such rights subject to certain sublicensing fees and royalty payments.

In consideration for the rights granted to the Company, under the license agreement as amended in December 2016, the Company paid UM $50,000 in fees in 2016 and in January 2017 issued UM an aggregate of 33,058 shares of its common stock. In connection with the Company's commercialization or sublicensing of certain products covered by the license agreement, including our former product candidate CMX521, the Company could be required to pay royalties on net sales of such products ranging from 0.25% to 2%. Beginning in 2024, the Company is also subject to certain minimum annual royalty payments.

The UM license agreement requires that the Company use commercially reasonable efforts to develop and make commercially available licensed products as soon as practicable. Specifically, the Company has agreed to make the first commercial sale of a licensed product by June of 2026. UM may terminate the license agreement if the Company materially breaches the license agreement. The Company is currently in compliance with its milestone requirements.

Note 7. Restructuring Costs

In May 2019, the Company made the decision to discontinue the development of oral and IV BCV development programs for the treatment of Adenovirus (AdV) in stem-cell transplant (HCT) patients. The Company's development efforts with respect to BCV are now focused on the treatment of smallpox. As a result, the Company restructured its operations, which included a reduction in workforce of 43 full-time employees and the accrual of expenses to close-out the clinical trials for the oral and IV
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development programs of BCV in AdV (study 210, study 211, AdAPT) and other supportive BCV development programs. In 2019, the Company recorded charges for one-time employee termination benefits of $3.3 million, contract close-out costs of $2.0 million, other BCV development costs of $0.3 million, and losses on disposals of fixed assets of $0.3 million during 2019. The $2.0 million of contract close-out costs were recorded through an increase in liabilities of $1.5 million with the remainder recognized through the expensing of prepaid balances. As of December 31, 2019, the Company had a clinical trial accrual balance related to the AdAPT, 210 and 211 trial terminations of $27,000, other development costs accrual balance of $0.1 million, and severance accrual balance of $0.2 million. Additionally, as of December 31, 2019 prepaid balances of $1.3 million for unused deposits have been reclassed to other receivables, which was recorded in prepaid expenses and other current assets on the Consolidated Balance Sheet.

The following table summarizes the restructuring charges (in thousands) recorded in 2019 during the period subsequent to the restructuring in May 2019: