10-Q 1 immu-20170930x10q.htm 10-Q immu_CurrentFolio_10Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2017

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:  0-12104

Immunomedics, Inc.

(Exact name of Registrant as specified in its charter)

 

Delaware

(State or other jurisdiction of

incorporation or organization)

61-1009366

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

 

300 The American Road, Morris Plains, New Jersey 07950

(Address of principal executive offices) (Zip Code)

 

(973) 605-8200

(Registrant’s Telephone Number, Including Area Code)

 

Former Name, Former Address and Former Fiscal Year,

If Changed Since Last Report:  Not Applicable

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period the registrant was required to submit and post such files).  ☑  Yes  ☐  No

 

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

 

Large Accelerated Filer ☐ 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 7(a)(2)(B) of the Securities Act. ☐

 

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

 

The number of shares of the registrant’s common stock outstanding as of November 6, 2017 was 152,020,576.

 

 

 


 

IMMUNOMEDICS, INC.

 

TABLE OF CONTENTS

 

PART I:

FINANCIAL INFORMATION

   

 

 

 

 

 

ITEM 1.

FINANCIAL STATEMENTS:

 

 

 

 

 

 

 

Unaudited Condensed Consolidated Balance Sheets as of September 30, 2017 and June 30, 2017

 

1

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Loss for the Three Months Ended September 30, 2017 and 2016

 

2

 

 

 

 

 

Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended September 30, 2017 and 2016

 

3

 

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

 

4

 

 

 

 

ITEM 2. 

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

29

 

 

 

 

ITEM 3. 

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

45

 

 

 

 

ITEM 4. 

CONTROLS AND PROCEDURES

 

45

 

 

 

 

PART II:

OTHER INFORMATION

 

 

 

 

 

 

ITEM 1. 

LEGAL PROCEEDINGS

 

46

 

 

 

 

ITEM 1A. 

RISK FACTORS

 

49

 

 

 

 

ITEM 6. 

EXHIBITS

 

67

 

 

 

 

EXHIBIT INDEX 

 

68

 

 

 

 

SIGNATURES 

 

69

 

 

 

 

 

 

 

 

 

 

 


 

IMMUNOMEDICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

September 30, 

 

June 30, 

 

 

    

2017

    

2017

 

ASSETS

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

42,959,290

 

$

43,393,570

 

Marketable securities

 

 

96,675,151

 

 

111,508,225

 

Accounts receivable, net of allowance for doubtful accounts of $12,589 at September 30, 2017 and $9,371 at June 30, 2017

 

 

427,177

 

 

488,723

 

Inventory

 

 

527,685

 

 

580,016

 

Other receivables

 

 

27,371

 

 

13,428

 

Prepaid expenses

 

 

5,109,855

 

 

891,284

 

Other current assets

 

 

1,637,356

 

 

422,916

 

Total current assets

 

 

147,363,885

 

 

157,298,162

 

Property and equipment, net of accumulated depreciation of  $29,877,759 and $29,560,955 at September 30, 2017 and June 30, 2017, respectively

 

 

5,965,459

 

 

5,245,230

 

Other long-term assets

 

 

30,000

 

 

30,000

 

Total Assets

 

$

153,359,344

 

$

162,573,392

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ DEFICIT

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

33,397,939

 

$

31,366,976

 

Warrant liabilities

 

 

165,842,874

 

 

90,706,206

 

Deferred revenues

 

 

154,173

 

 

170,967

 

Total current liabilities

 

 

199,394,986

 

 

122,244,149

 

Convertible senior notes – net of unamortized debt issuance costs of  $346,665 at September 30, 2017 and $1,915,781 at June 30, 2017

 

 

19,653,335

 

 

98,084,219

 

Other liabilities

 

 

1,699,206

 

 

1,708,272

 

Commitments and Contingencies (Note 13)

 

 

 

 

 

Stockholders’ Deficit:

 

 

 

 

 

 

 

Convertible preferred stock, $.01 par value; authorized 10,000,000 shares; no shares issued and outstanding at September 30, 2017 and 1,000,000 shares issued and outstanding at June 30, 2017

 

 

 

 

10,000

 

Common stock, $.01 par value; authorized 250,000,000 shares; issued 152,055,301 shares and outstanding 152,020,576 shares at September 30, 2017; issued 110,344,643 shares and outstanding 110,309,918 shares at June 30, 2017

 

 

1,520,552

 

 

1,103,446

 

Capital contributed in excess of par

 

 

573,137,509

 

 

462,666,366

 

Treasury stock, at cost: 34,725 shares at September 30, 2017 and at June 30, 2017

 

 

(458,370)

 

 

(458,370)

 

Accumulated deficit

 

 

(640,455,447)

 

 

(521,710,899)

 

Accumulated other comprehensive loss

 

 

(343,710)

 

 

(302,710)

 

Total Immunomedics, Inc. stockholders’ deficit

 

 

(66,599,466)

 

 

(58,692,167)

 

Noncontrolling interest in subsidiary

 

 

(788,717)

 

 

(771,081)

 

Total stockholders’ deficit

 

 

(67,388,183)

 

 

(59,463,248)

 

Total Liabilities and Stockholders' Deficit

 

$

153,359,344

 

$

162,573,392

 

 

See accompanying notes to unaudited condensed consolidated financial statements

1


 

IMMUNOMEDICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF

COMPREHENSIVE LOSS 

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

Three months ended 

 

 

 

September 30, 

 

 

    

2017

    

2016

 

Revenues:

 

 

 

 

 

 

 

Product sales

 

$

526,388

 

$

597,514

 

License fee and other revenues

 

 

1,095

    

 

15,107

 

Research and development

 

 

163,007

 

 

129,185

 

Total revenues

 

 

690,490

 

 

741,806

 

 

 

 

 

 

 

 

 

Costs and Expenses:

 

 

 

 

 

 

 

Costs of goods sold

 

 

70,180

 

 

255,105

 

Research and development

 

 

17,341,528

 

 

14,525,864

 

Sales and marketing

 

 

226,100

 

 

215,856

 

General and administrative

 

 

4,650,303

 

 

691,584

 

Total costs and expenses

 

 

22,288,111

 

 

15,688,409

 

Operating loss

 

 

(21,597,621)

 

 

(14,946,603)

 

Changes in fair market value of warrant liabilities

 

 

(86,378,330)

 

 

 

Interest expense

 

 

(2,646,901)

 

 

(1,369,955)

 

Interest and other income, net

 

 

416,239

 

 

85,206

 

Loss on induced exchanges of debt

 

 

(13,005,329)

 

 

 

Insurance reimbursement

 

 

4,366,137

 

 

 

Foreign currency transaction gain, net

 

 

83,621

 

 

2,459

 

Loss before income tax benefit

 

 

(118,762,184)

 

 

(16,228,893)

 

Income tax expense

 

 

 —

 

 

 —

 

Net loss

 

 

(118,762,184)

 

 

(16,228,893)

 

Less: Net loss attributable to noncontrolling interest

 

 

(17,636)

 

 

(31,045)

 

Net loss attributable to Immunomedics, Inc. stockholders

 

$

(118,744,548)

 

$

(16,197,848)

 

Loss per common share attributable to Immunomedics, Inc. stockholders (basic and diluted):

 

$

(0.97)

 

$

(0.17)

 

Weighted average shares used to calculate loss per common share (basic and diluted)

 

 

122,550,144

 

 

95,883,729

 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(73,133)

 

 

37,108

 

Unrealized gain (loss) on securities available for sale

 

 

32,133

 

 

(32,609)

 

Other comprehensive (loss) income, net of tax:

 

 

(41,000)

 

 

4,499

 

Comprehensive loss

 

 

(118,803,184)

 

 

(16,224,394)

 

Less comprehensive loss attributable to noncontrolling interest

 

 

(17,636)

 

 

(31,045)

 

Comprehensive loss attributable to Immunomedics, Inc. stockholders

 

$

(118,785,548)

 

$

(16,193,349)

 

 

See accompanying notes to unaudited condensed consolidated financial statements

2


 

IMMUNOMEDICS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

September 30, 

 

 

    

2017

    

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net loss

    

$

(118,762,184)

    

$

(16,228,893)

 

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

 

 

 

 

 

 

 

Changes in fair value of warrant liabilities

 

 

86,378,330

 

 

 —

 

Loss on induced exchanges of debt

 

 

13,005,329

 

 

 —

 

Depreciation and amortization

 

 

212,535

 

 

225,862

 

Amortization of deferred revenue

 

 

(16,794)

 

 

(15,107)

 

Amortization of bond premiums

 

 

(14,007)

 

 

94,380

 

Amortization of debt issuance costs

 

 

1,569,116

 

 

182,454

 

Amortization of deferred rent

 

 

(9,066)

 

 

24,879

 

(Gain) loss on sale of marketable securities

 

 

(286)

 

 

15,040

 

Increase (decrease) in allowance for doubtful accounts

 

 

3,218

 

 

(10,590)

 

Non-cash expense related to stock compensation

 

 

583,525

 

 

774,042

 

Changes in operating assets and liabilities

 

 

(3,520,451)

 

 

(1,870,432)

 

Net cash used in operating activities

 

 

(20,570,735)

 

 

(16,808,365)

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of marketable securities

 

 

(244,890)

 

 

 —

 

Proceeds from sales/maturities of marketable securities

 

 

15,124,483

 

 

12,712,000

 

Purchases of property and equipment

 

 

(788,518)

 

 

(647,572)

 

Net cash provided by investing activities

 

 

14,091,075

 

 

12,064,428

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Sale of common stock and warrants, net of related expenses

 

 

5,906,251

 

 

 —

 

Exercise of stock options

 

 

611,670

 

 

105,133

 

Direct cost of raising equity

 

 

(419,054)

 

 

 —

 

Tax withholding payments for stock compensation

 

 

(51,134)

 

 

(105,229)

 

Net cash provided by (used in) financing activities

 

 

6,047,733

 

 

(96)

 

Effect of changes in exchange rates on cash and cash equivalents

 

 

(2,353)

 

 

5,015

 

Net decrease in cash and cash equivalents

 

 

(434,280)

 

 

(4,739,018)

 

Cash and cash equivalents beginning of period

 

 

43,393,570

 

 

13,203,625

 

Cash and cash equivalents end of period

 

$

42,959,290

 

$

8,464,607

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

 

Interest paid

 

$

2,375,000

 

$

2,375,000

 

Schedule of non-cash financing activities:

 

 

 

 

 

 

 

Convertible Senior Notes converted to common stock

 

$

80,000,000

 

$

 —

 

Reclass of warrant liability to capital contributed in excess of par

 

$

11,241,662

 

$

 —

 

 

See accompanying notes to unaudited condensed consolidated financial statements.

3


 

IMMUNOMEDICS, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

 

Reference is made to the Annual Report on Form 10-K, as amended on Form 10-K/A of Immunomedics, Inc., a Delaware corporation (“Immunomedics,” the “Company,” “we,” “our” or “us”), for the fiscal year ended June 30, 2017, which contains our audited consolidated financial statements and the notes thereto.

1.Business Overview and Basis of Presentation

Immunomedics is a clinical-stage biopharmaceutical company that develops monoclonal antibody-based products for the targeted treatment of cancer, autoimmune disorders and other serious diseases. Our most advanced product candidate is IMMU-132 (sacituzumab govitecan), an antibody-drug conjugate (“ADC”) that has received Breakthrough Therapy Designation (“BTD”) from the United States Food and Drug Administration (“FDA”) for the treatment of patients with metastatic triple-negative breast cancer (“mTNBC”) who have failed at least two prior therapies for metastatic disease. BTD has provided us with ready access to the FDA to discuss its Expedited Programs for Serious Conditions for IMMU-132, including the Accelerated Approval Program.

The Company has two foreign subsidiaries, Immunomedics B.V. in the Netherlands and Immunomedics GmbH in Rodermark, Germany, that assist the Company in managing sales efforts and coordinating clinical trials in Europe.  In addition, included in the accompanying condensed financial statements is the majority-owned U.S. subsidiary, IBC Pharmaceuticals, Inc. (“IBC”), which works on the development of novel cancer radiotherapeutics using patented pre-targeting technologies with proprietary, bispecific antibodies.

The accompanying unaudited condensed consolidated financial statements of Immunomedics, which incorporate our subsidiaries, have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”), for interim financial information and the instructions to the Quarterly Report on Form 10‑Q and Regulation S‑X. Accordingly, the statements do not include all of the information and footnotes required by GAAP for complete annual financial statements. With respect to the financial information for the interim periods included in this Quarterly Report on Form 10-Q, which is unaudited, management believes that all adjustments (consisting of normal recurring accruals), considered necessary for a fair presentation of the results for such interim periods have been included. Operating results for the three-month period ended September 30, 2017 are not necessarily indicative of the results that may be expected for the full fiscal year ending June 30, 2018, or any other period.

Immunomedics is subject to significant risks and uncertainties, including, without limitation, the Company’s inability to further identify, develop and achieve commercial success for new products and technologies; the possibility of delays in the research and development necessary to select drug development candidates and delays in clinical trials; the risk that clinical trials may not result in marketable products; the risk that the Company may be unable to secure regulatory approval of and market its drug candidates; the development or regulatory approval of competing products; the Company’s ability to protect its proprietary technologies; patent-infringement claims; and risks of new, changing and competitive technologies and regulations in the United States and internationally.

Since its inception in 1982, Immunomedics’ principal sources of funds have been the private and public sale of equity and debt securities, and revenues from licensing agreements, including up-front and milestone payments, funding of development programs, and other forms of funding from collaborations.

4


 

As of September 30, 2017 the Company had $139.6 million in cash, cash equivalents and marketable securities, which we believe is sufficient to sustain the Company’s operations and research and development programs for at least the next twelve months at a level of activity sufficient to support the filing of a Biologics License Application (“BLA”) with the FDA for accelerated approval of IMMU-132 for patients with mTNBC in the U.S.; to continue manufacturing IMMU-132 at a large scale to prepare for commercial operations in the U.S.; to continue the Phase 3 ASCENT trial of IMMU-132 for mTNBC patients to support the filing of the BLA, and to initiate preparations to market IMMU-132 to mTNBC patients in the U.S. The Company believes it has sufficient funds to continue its operations and research and development programs for at least the next twelve months.

The Company will require additional funding after November 2018 to secure regulatory approval from the FDA, complete commercial preparations to market IMMU-132 to mTNBC patients in the United States, complete its clinical trials currently underway or planned, continue research and new development programs, and continue operations. Potential sources of funding include the exercise of outstanding warrants, the entrance into various potential strategic partnership transactions towards advancing and maximizing the Company’s full pipeline for mTNBC and beyond, and potential equity and debt financing.

Until the Company can generate significant cash through the exercise of outstanding warrants, the entrance into various potential strategic partnership transactions towards advancing and maximizing the Company’s full pipeline for mTNBC and beyond, or commercial operations, it expects to continue to fund its operations with its current financial resources. After November 2018, if the Company cannot obtain sufficient funding through the exercise of outstanding warrants, or through the entrance into various potential strategic partnership transactions towards advancing and maximizing the Company’s full pipeline for mTNBC and beyond, it could be required to finance future cash needs through the sale of additional equity and/or debt securities in capital markets. However, there can be no assurance that the Company will be able to raise the additional capital needed to complete its pipeline of research and development programs on commercially acceptable terms, if at all. The capital markets have experienced volatility in recent years, which has resulted in uncertainty with respect to availability of capital and hence the timing to meet an entity’s liquidity needs. The Company’s existing debt may also negatively impact the Company’s ability to raise additional capital. If the Company is unable to raise capital on acceptable terms, its ability to continue its business would be materially and adversely affected.

2.Summary of Significant Accounting Policies

These unaudited condensed consolidated interim financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K, as amended on Form 10-K/A for the year ended June 30, 2017. The Company adheres to the same accounting policies in preparation of its interim financial statements.

Principles of Consolidation and Presentation

            The condensed consolidated financial statements include the accounts of Immunomedics and its subsidiaries. Noncontrolling interests in consolidated subsidiaries in the condensed consolidated balance sheets represent minority stockholders’ proportionate share of the deficit in such subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

5


 

Financial Instruments

            The carrying amounts of cash and cash equivalents, other current assets and current liabilities approximate fair value due to the short-term maturity of these instruments. The Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.

Marketable Securities

            Marketable securities, all of which are available-for-sale, consist of corporate debt securities, U.S. bonds, U.S. sponsored agencies and municipal bonds. Corporate debt securities include Eurodollar issues of U.S. corporations, and U.S. dollar denominated issues of foreign corporations. Marketable securities are carried at fair value, with unrealized gains and losses, net of related income taxes, reported as accumulated other comprehensive loss, except for losses from impairments which are determined to be other-than-temporary. Realized gains and losses, and declines in value judged to be other-than-temporary on available-for-sale securities are included in the determination of net loss and are included in interest and other income (net), at which time the average cost basis of these securities are adjusted to fair value. Fair values are based on quoted market prices at the reporting date. Interest and dividends on available-for-sale securities are included in interest and other income (net).

Inventory

Inventory, which consists of the raw materials, work-in-process and finished product of LeukoScan®, is stated at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The Company will capitalize inventory costs associated with the Company’s product, IMMU-132, after regulatory approval when, based on management’s judgment, future commercialization is considered probable and the future economic benefit is expected to the realized; otherwise, such costs are expensed as research and development. In addition, the Company’s product is subject to strict quality control and monitoring which the Company performs throughout the manufacturing process. If certain batches or units of product no longer meet quality specification or become obsolete due to expiration, the Company records a charge to cost of sales sold to write down such unmarketable inventory to zero. 

Revenue Recognition

            The Company has accounted for revenue arrangements that include multiple deliverables as a separate unit of accounting if both of the following criteria are met: a) the delivered item has value to the customer on a standalone basis, and b) if the right of return exists, delivery of the undelivered items is considered probable and substantially in the control of the vendor. If these criteria are not met, the revenue elements must be considered a single unit of accounting for purposes of revenue recognition. The Company allocates revenue consideration, excluding contingent consideration, based on the relative selling prices of the separate units of accounting contained within an arrangement containing multiple deliverables. Relative selling prices are determined using vendor specific objective evidence, if it exists; otherwise third-party evidence or the Company’s best estimate of selling price is used for each deliverable. 

            Payments received under contracts to fund certain research activities are recognized as revenue in the period in which the research activities are performed. Payments received in advance that are related to future performance are deferred and recognized as revenue when the research projects are performed. Upfront nonrefundable fees associated with license and development agreements where the Company has continuing involvement in the agreement are recorded as deferred revenue and recognized over the estimated service period. The Company estimates the period of continuing involvement based on the best evidential matter

6


 

available at each reporting period. If the estimated service period is subsequently modified, the period over which the upfront fee is recognized is modified accordingly on a prospective basis.

            In order to determine the revenue recognition for contingent milestones, the Company evaluates the contingent milestones using the criteria as provided by the Financial Accounting Standards Boards (“FASB”) guidance on the milestone method of revenue recognition, as explained in ASU 2010-17, “Milestone Method of Revenue Recognition,” at the inception of a collaboration agreement. The criteria requires that (i) the Company determines if the milestone is commensurate with either its performance to achieve the milestone or the enhancement of value resulting from the Company’s activities to achieve the milestone, (ii) the milestone be related to past performance, and (iii) the milestone be reasonable relative to all deliverable and payment terms of the collaboration arrangement. If these criteria are met then the contingent milestones can be considered as substantive milestones and will be recognized as revenue in the period that the milestone is achieved. Royalties are recognized as earned in accordance with the terms of various research and collaboration agreements.

            Revenue from the sale of diagnostic products is recorded when there is persuasive evidence that an arrangement exists, delivery has occurred, the price is fixed and determinable or collectability is reasonably assured. Allowances, if any, are established for uncollectible amounts, estimated product returns and discounts. Since allowances are recorded based on management’s estimates, actual amounts may be different in the future.

Research and Development Costs

            Research and development costs are expensed as incurred. Costs incurred for clinical trials for patients and investigators are expensed as services are performed in accordance with the agreements in place with the institutions.

Reimbursement of Research & Development Costs

            Research and development costs that are reimbursable under collaboration agreements are included as a reduction of research and development expenses. The Company records these reimbursements as a reduction of research and development expenses as the Company’s partner in the collaboration agreement has the financial risks and responsibility for conducting these research and development activities.

Stock-Based Compensation

            The Company utilizes stock-based compensation in the form of stock options, stock appreciation rights, stock awards, stock unit awards, performance shares, cash-based performance units and other stock-based awards, each of which may be granted separately or in tandem with other awards.

            The grant-date fair value of stock awards is based upon the underlying price of the stock on the date of grant. The grant-date fair value of stock option awards must be determined using an option pricing model. Option pricing models require the use of estimates and assumptions as to (a) the expected term of the option, (b) the expected volatility of the price of the underlying stock and (c) the risk-free interest rate for the expected term of the option. The Company uses the Black-Scholes option pricing formula for determining the grant-date fair value of such awards.

            The expected term of the option is based upon the contractual term and expected employee exercise and expected post-vesting employment termination behavior. The expected volatility of the price of the underlying stock is based upon the historical volatility of the Company’s stock computed over a period of

7


 

time equal to the expected term of the option. The risk free interest rate is based upon the implied yields currently available from the U.S. Treasury yield curve in effect at the time of the grant. Pre-vesting forfeiture rates are estimated based upon past voluntary termination behavior and past option forfeitures.

            The following table sets forth the weighted-average assumptions used to calculate the fair value of options granted for the three-month periods ended September 30, 2017 and 2016:

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

September 30, 

 

 

    

2017

    

2016

 

Expected dividend yield

 

0%

 

0%

 

Expected option term (years)

 

4.84

 

5.05

 

Expected stock price volatility

 

68%

 

62%

 

Risk-free interest rate

 

1.72% - 1.90%

 

1.16% - 1.21%

 

 

            The Company uses historical data to estimate forfeitures. The expected term of options granted represents the period of time that options granted are expected to be outstanding. Expected stock price volatility was calculated based on the Company’s daily stock trading history. The risk-free rate for periods within the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

            Changes in any of these assumptions could impact, potentially materially, the amount of expense recorded in future periods related to stock-based awards.

Common Stock Warrants

 

In connection with certain financing transactions in October 2016 and February 2017, the Company issued warrants and recorded them as liabilities due to certain net cash settlement provisions. The warrants were recorded at fair value using the Black-Scholes valuation model. The Black-Scholes valuation model takes into account, as of the valuation date, factors including the current exercise price, the term of the warrant, the current price of the underlying stock and its expected volatility, expected dividends on the stock, and the risk-free interest rate for the term of the warrant. These warrants are subject to re-measurement at each balance sheet date until the warrants are exercised or expired, and any change in fair value is recognized as “change in the fair value of warrant liability” in the consolidated statements of operations.

Income Taxes 

            The Company uses the asset and liability method to account for income taxes, including the recognition of deferred tax assets and deferred tax liabilities for the anticipated future tax consequences attributable to differences between financial statement amounts and their respective tax bases. The Company reviews its deferred tax assets for recovery. A valuation allowance is established when the Company believes that it is more likely than not that its deferred tax assets will not be realized. Changes in valuation allowances from period to period are included in the Company’s tax provision in the period of change. The Company has recorded a full valuation allowance against its net deferred tax assets as of September 30, 2017.

            At June 30, 2017, the Company has available net operating loss carry forwards for federal income tax reporting purposes of approximately $371.1 million and for state income tax reporting purposes of approximately $186.0 million, which expire at various dates between fiscal 2018 and 2037. Pursuant to Section 382 of the Internal Revenue Code of 1986, as amended, the annual utilization of a company’s net operating loss and research credit carry forwards may be limited if the Company experiences a change in ownership as defined in Section 382 of the Internal Revenue Code. The Company’s net operating loss carry forwards available to offset future federal taxable income arising before such ownership changes may be

8


 

limited. Similarly, the Company may be restricted in using its research credit carry forwards arising before such ownership changes to offset future federal income tax expense.

            The Company’s U.S. operations and foreign jurisdictions reported a net loss for the three-month periods ended September 30, 2017 and 2016, resulting in a tax benefit that was fully offset by a valuation allowance.

            The Company has no liability for uncertain tax positions as of September 30, 2017.

Net Loss Per Share Allocable to Common Stockholders

            Net loss per basic and diluted common share allocable to common stockholders is based on the net loss for the relevant period, divided by the weighted-average number of common shares outstanding during the period. For purposes of the diluted net loss per common share calculations, the exercise or exchange of all potential common shares is not included because their effect would have been anti-dilutive, due to the net loss recorded for the three-month periods ended September 30, 2017 and 2016. The common stock equivalents excluded from the diluted per share calculation are 25,685,221 and 26,762,930 shares at September 30, 2017 and 2016, respectively.

Net Comprehensive Loss

            Net comprehensive loss consists of net loss, unrealized loss on available for sale securities and foreign exchange translation adjustments and is presented in the condensed consolidated statements of comprehensive loss.

Recently Issued Accounting Pronouncements

In May 2017, the FASB issued ASU 2017-09, "Stock Compensation - Scope of Modification Accounting", guidance that clarifies that all changes to share-based payment awards are not necessarily accounted for as a modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award changes as a result of the change in terms or conditions. The amendments in this guidance should be applied prospectively in annual periods beginning after December 15, 2017, including interim periods within those periods, with early adoption permitted. This guidance will apply to any future modifications. The Company is assessing ASU 2017-09’s impact and if applicable, will adopt it when effective.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows: Clarification of Certain Cash Receipts and Cash Payments”, which eliminates the diversity in practice related to the classification of certain cash receipts and payments in the statement of cash flows, by adding or clarifying guidance on eight specific cash flow issues. ASU 2016-15 is effective for annual and interim reporting periods beginning after December 15, 2017 and early adoption is permitted. ASU 2016-15 provides for retrospective application for all periods presented. The Company is assessing the impact of ASU 2016-15 and will adopt it when effective.

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” which simplified 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. Public companies are required to adopt this standard in annual reporting periods beginning after December 15, 2016, and interim periods within those annual periods. The Company implemented ASU 2016-09 effective July 1, 2017, which did not have a material impact on the consolidated financial statement presentation.

9


 

In February 2016, the FASB issued ASU 2016-02, “Leases” and issued subsequent amendments to the initial guidance contained within ASU 2017-13. This standard requires a lessee to record on the balance sheet the assets and liabilities for the rights and obligations created by lease terms of more than 12 months. The amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early application is permitted. The Company is assessing ASU 2016-02’s impact and will adopt it when effective.  

On May 28, 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers,” and issued subsequent amendments to the initial guidance contained within ASU 2017-13, ASU 2016-20, ASU 2016-12, ASU 2016-10 and ASU 2016-08. Previous revenue recognition guidance in U.S. GAAP comprised broad revenue recognition concepts together with numerous revenue requirements for particular industries or transactions, which sometimes resulted in different accounting for economically similar transactions. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to been titled in exchange for those goods or services. In addition, ASU 2014-09 expands and enhances disclosure requirements which require disclosing sufficient information to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. This includes both qualitative and quantitative information. The amendments in ASU 2014-09 are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted. The guidance permits two methods of adoption: full retrospective in which the standard is applied to all of the periods presented or modified retrospective where an entity will have to recognize the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings. The Company is currently evaluating which transition approach it will utilize and the impact of adopting ASU 2014-09 and subsequent updates will have on its consolidated financial statements and related disclosures. The Company will adopt these standards with an effective date of July 1, 2018.

3.          Marketable Securities

Immunomedics considers all of its current investments to be available-for-sale. Marketable securities at September 30, 2017 consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Gross

    

Gross

    

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

 

 

 

Cost

 

Gain

 

(Loss)

 

Fair Value

 

U.S. Treasury Bonds

 

$

32,108

 

$

 —

 

$

(17)

 

$

32,091

 

Certificate of Deposits

 

 

13,026

 

 

 —

 

 

 —

 

 

13,026

 

U.S. Government Sponsored Agencies

 

 

12,876

 

 

 —

 

 

(6)

 

 

12,870

 

Corporate Debt Securities

 

 

28,520

 

 

 —

 

 

(17)

 

 

28,503

 

Commercial Paper

 

 

10,181

 

 

 4

 

 

 —

 

 

10,185

 

 

 

$

96,711

 

$

 4

 

$

(40)

 

$

96,675

 

 

Maturities of debt securities classified as available-for-sale were as follows at September 30, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Carrying

 

 

    

Fair Value

    

Amount

 

Due within one year

 

$

96,675

 

$

96,935

 

Due after one year through five years

 

 

 —

 

 

 —

 

 

 

$

96,675

 

$

96,935

 

 

10


 

Marketable securities at June 30, 2017 consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

 

    

Gross

    

Gross

    

 

 

 

 

 

Amortized

 

Unrealized

 

Unrealized

 

 

 

 

 

 

Cost

 

Gain

 

(Loss)

 

Fair Value

 

U.S. Treasury Bonds

 

$

35,086

 

$

 —

 

$

(24)

 

$

35,062

 

Certificate of Deposits

 

 

15,298

 

 

 —

 

 

 —

 

 

15,298

 

U.S. Government Sponsored Agencies

 

 

18,357

 

 

 —

 

 

(13)

 

 

18,344

 

Corporate Debt Securities

 

 

32,692

 

 

 —

 

 

(33)

 

 

32,659

 

Commercial Paper

 

 

10,144

 

 

 1

 

 

 —

 

 

10,145

 

 

 

$

111,577

 

$

 1

 

$

(70)

 

$

111,508

 

 

Maturities of debt securities classified as available-for-sale were as follows at June 30, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Carrying

 

 

    

Fair Value

    

Amount

 

Due within one year

 

$

89,477

 

$

89,728

 

Due after one year through five years

 

 

22,031

 

 

22,149

 

 

 

$

111,508

 

$

111,877

 

 

 

4.Convertible Senior Notes

In February 2015, the Company issued $100.0 million of Convertible Senior Notes (the “Convertible Senior Notes”) (net proceeds of approximately $96.3 million after deducting the initial purchasers’ fees and offering expenses) in a private offering exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), in reliance upon Rule 144A under the Securities Act (the “Convertible Senior Notes”). The Convertible Senior Notes will mature on February 15, 2020, unless earlier purchased or converted. The debt issuance costs of approximately $3.7 million, primarily consisting of underwriting, legal and other professional fees, are amortized over the term of the Convertible Senior Notes. The Convertible Senior Notes are senior unsecured obligations of the Company. Interest at 4.75% is payable semiannually on February 15 and August 15 of each year. The effective interest rate on the Convertible Senior Note was 5.48% for the period from the date of issuance through September 30, 2017.  

The Convertible Senior Notes are convertible at the option of holders into approximately 19.6 million shares of common stock at any time prior to the close of business on the day immediately preceding the maturity date. The exchange rate will initially be 195.8336 shares of common stock per $1,000 principal amount of Convertible Senior Notes (equivalent to an initial exchange price of approximately $5.11 per share of common stock).

If the Company undergoes a fundamental change (as defined in the indenture governing the Convertible Senior Notes), holders may require Immunomedics to purchase for cash all or part of the Convertible Senior Notes at a purchase price equal to 100% of the principal amount of the Convertible Senior Notes to be purchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change purchase date, subject to certain exceptions. In addition, if certain make-whole fundamental changes (as defined in the indenture governing the Convertible Senior Notes) occur, Immunomedics will, in certain circumstances, increase the exchange rate for any Convertible Note converted in connection with such make-whole fundamental change.

The indenture does not limit the amount of debt which may be issued by the Company under the indenture or otherwise, does not contain any financial covenants or restrict the Company from paying dividends, selling or disposing of assets, or issuing or repurchasing its other securities, provided that such

11


 

event is not deemed to be a fundamental change (as defined in the indenture governing the Convertible Senior Notes). The indenture contains customary terms and covenants and events of default.

If an event of default with respect to the Convertible Senior Notes occurs, holders may, upon satisfaction of certain conditions, accelerate the principal amount of the Convertible Senior Notes plus premium, if any, and accrued and unpaid interest, if any. In addition, the principal amount of the Convertible Senior Notes plus premium, if any, and accrued and unpaid interest, if any, will automatically become due and payable in the case of certain types of bankruptcy or insolvency events of default involving the Company.

On September 21, 2017, the Company entered into separate, privately negotiated exchange agreements, (the “Exchange Agreements”) with certain holders of the Convertible Senior Notes. Under the Exchange Agreements, such holders agreed to convert an aggregate $80.0 million of Convertible Senior Notes held by them. The Company initially settled each $1,000 principal amount of Convertible Senior Notes surrendered for exchange by delivering 176.2502 shares of common stock in three tranches occurring on September 19, 2017 through September 21, 2017. In total, the Company issued an aggregate 16,799,861 in the Exchange Agreements. The shares represent an aggregate of 1,133,173 shares more than the number of shares into which the exchanged Convertible Senior Notes were convertible under their original terms. As a result of the Exchange Agreements, the Company recognized a loss on induced exchanges of debt of $13.0 million representing the fair value of the incremental consideration paid to induce the holders to exchange their Convertible Senior Notes for equity (i.e., 1,133,173 Common Shares), based on the closing market price of the Company’s Common Stock on the date of the Exchange Agreements.

As a result of the Exchange Agreements, the outstanding aggregate principal amount of the Convertible Senior Notes was reduced to $20.0 million. 

Total interest expense for the Convertible Senior Notes for the three-month periods ended September 30, 2017 and 2016 was $2.6 million and $1.4 million, respectively. Included in interest expense is the amortization of debt issuance costs of $1.6 million ($1.4 million of which related to the accelerated amortization of debt issuance costs associated with the $80.0 million exchange of Convertible Senior Notes in September 2017) and $0.2 million for three-month periods ended September 30, 2017 and 2016, respectively.

5. Warrant Liabilities

In connection with a public offering conducted during October 2016, the Company issued warrants that contain net cash settlement provisions. Additionally, in connection with a stock purchase agreement entered into with Seattle Genetics, Inc. during February 2017 (the “SGEN Warrant”), the Company issued warrants that also have similar net cash settlement provisions. Accordingly, as of September 30, 2017, both warrants do not meet the criteria for classifications as equity and are recorded as liabilities on the Company’s balance sheet. The Company recorded these warrants as liabilities at their fair values as calculated at their respective dates of inception. The change in the fair value of each warrant is measured, and booked as an income or expense to adjust the warrant liability on a periodic basis at the end of each fiscal quarter or upon exercise of the warrants.

On July 18, 2017, and September 1, 2017, 900,000 and 675,000 warrants, both related to the October 2016 offering were exercised, respectively.  The fair value of the aggregate 1,575,000 exercised warrants increased $2.6 million from June 30, 2017 to the dates of exercise which has been recognized in the accompanying condensed consolidated statements of comprehensive loss. The fair value of the warrants at the exercise dates of $11.2 million was reclassified to Capital Contributed in Excess of Par. 

12


 

The Company uses Level 2 inputs for its valuation methodology for the warrant liabilities. The estimated fair value was determined using a Black-Scholes valuation model based on various assumptions. The warrant liabilities are adjusted to reflect estimated fair value at each period end, with any changes in the fair value being recorded in changes in fair value of warrant liabilities.

The estimated fair value of the warrant liabilities was approximately $165.8 million and $90.7 million, as of September 30, 2017 and June 30, 2017, respectively. The change in fair value of the warrant liabilities for the three month period ended September 30, 2017 was approximately $86.4 million.

6.Estimated Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, marketable securities, accounts receivable, accounts payable and accrued expenses, warrant liability and Convertible Senior Notes. The carrying amount of accounts receivable, accounts payable and accrued expenses are generally considered to be representative of their respective fair values because of the short-term nature of those instruments as of September 30, 2017 and June 30, 2017.

The Company has categorized its other financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy as set forth below. If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Financial instruments recorded on the condensed consolidated balance sheets as of September 30, 2017 and June 30, 2017 are categorized based on the inputs to the valuation techniques as follows (in thousands):

·

Level 1 – Financial instruments whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market which the company has the ability to access at the measurement date (examples include active exchange-traded equity securities and most U.S. Government and agency securities).

·

Level 2 – Financial instruments whose value are based on quoted market prices in markets where trading occurs infrequently or whose values are based on quoted prices of instruments with similar attributes in active markets.

·

Level 3 – Financial instruments whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset.

13


 

Cash equivalents and marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

September 30, 2017

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Money Market Funds Note (a)

 

$

39,166

 

$

 —

 

$

 —

 

$

39,166

 

Marketable Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Bonds

 

 

32,091

 

 

 

 

 

 

32,091

 

Certificate of Deposits

 

 

13,026

 

 

 

 

 

 

13,026

 

U.S. Government Sponsored Agencies

 

 

12,870

 

 

 

 

 

 

12,870

 

Corporate Debt Securities

 

 

28,503

 

 

 

 

 

 

28,503

 

Commercial Paper

 

 

10,185

 

 

 

 

 

 

10,185

 

Total

 

$

135,841

 

$

 —

 

$

 —

 

$

135,841

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

($ in thousands)

 

June 30, 2017

    

Level 1

    

Level 2

    

Level 3

    

Total

 

Money Market Funds Note (a)

 

$

36,776

 

$

 —

 

$

 —

 

$

36,776

 

Marketable Securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Treasury Bonds

 

 

35,062

 

 

 

 

 

 

35,062

 

Certificate of Deposits

 

 

15,298

 

 

 

 

 

 

15,298

 

U.S. Government Sponsored Agencies

 

 

18,344

 

 

 

 

 

 

18,344

 

Corporate Debt Securities

 

 

32,659

 

 

 

 

 

 

32,659

 

Commercial Paper

 

 

10,145

 

 

 

 

 

 

10,145

 

Total

 

$

148,284

 

$

 —

 

$

 —

 

$

148,284

 


(a)

The money market funds noted above are included in cash and cash equivalents.

 

Convertible Senior Notes

The carrying amounts and estimated fair values (Level 2) of debt instruments are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of September 30, 2017

 

As of June 30, 2017

 

 

 

Carrying

 

Estimated

 

Carrying

 

Estimated

 

 

 

Amount

 

Fair Value

 

Amount

 

Fair Value

 

 

    

 

    

    

 

    

    

 

    

    

 

    

 

Convertible Senior Notes

 

$

19,653

 

$

54,374

 

$

98,084

 

$

180,950

 

 

The fair value of the Convertible Senior Notes, which differs from their carrying values, is influenced by interest rates, the Company’s stock price and stock price volatility and is determined by prices for the Convertible Senior Notes observed in market trading which are Level 2 inputs.

Warrant Liabilities

 

The Company has determined its warrant liabilities to be a Level 2 fair value measurement and used the Black Scholes valuation model to calculate the fair value as of September 30, 2017 and June 30, 2017:

14


 

At the measurement dates, the Company estimated the fair value for the warrants based on Black-Scholes valuation model and using the following assumptions:

 

 

 

 

 

 

 

 

 

 

 

    

September 30,

    

September 30,

    

June 30,

    

June 30,

 

 

 2017 (1)

 

 2017 (2)

 

 2017 (1)

 

 2017 (2)

Risk-free interest rate

 

1.06%

 

1.31%

 

1.14%

 

1.38%

Expected remaining term

 

0.26 years

 

1.03 years

 

0.51 years

 

1.28 years

Expected volatility

 

63.73%

 

70.69%

 

69.34%

 

73.85%

Dividend yield

 

0%

 

0%

 

0%

 

0%

 

(1)

Represents the fair value assumptions for the warrants issued in connection with February 10, 2017 stock purchase agreement.

(2)

Represents the fair value assumptions for the warrants issued in connection with October 11, 2016 on public offering.

 

The following table sets forth the changes in the fair value for the warrant liability during the three-month period ended September 30, 2017 ($ in thousands):

 

 

 

 

 

 

 

Warrants

    

Level 2

Fair value – June 30, 2017

18,655,804

 

$

90,706

Reclass of warrant liability to capital contributed in excess of par due to exercise

(1,575,000)

 

 

(11,241)

Change in fair value

 —

 

 

86,378

Fair value – September 30, 2017

17,080,804

 

$

165,843

 

 

7.Stockholders’ Deficit

 

At the June 29, 2017 Special Meeting, the Company’s stockholders approved the amendment and restatement of the Company’s Certificate of Incorporation to increase the maximum number of shares of the Company’s stock authorized up to 260,000,000 shares of stock consisting of 250,000,000 shares of common stock and 10,000,000 shares of preferred stock, (the “Charter Amendment”). Previously the Company’s Certificate of Incorporation authorized up to 165,000,000 shares of capital stock, consisting of 155,000,000 shares of common stock and 10,000,000 shares of preferred stock.

 

Preferred Stock

 

The Certificate of Incorporation of the Company authorizes 10,000,000 shares of preferred stock, $.01 par value per share. The preferred stock may be issued from time to time in one or more series, with such distinctive serial designations, rights and preferences as shall be determined by the Board of Directors.

On May 10, 2017, the Company issued in a private placement 1,000,000 shares (the “Preferred Shares”) of the Company’s Series A-1 Convertible Preferred Stock at a price of $125 per share for gross proceeds to the Company of $125 million, before deducting fees and expenses. Each Preferred Share was exchanged into 23.10536 shares of common stock (or an aggregate of 23,105,348 shares of common stock). The exchange price per share of common stock was $5.41.

Following the June 29, 2017 Special Meeting and filing the Charter Amendment with the State of Delaware, the Company had authorized a sufficient number of unreserved shares of common stock to permit the exchange of the Preferred Shares. On July 31, 2017, the Company filed a registration statement on Form S-3 to register for resale the 23,105,360 shares of the Company’s common stock issuable upon the exchange

15


 

of the Series A-1 Convertible Preferred Stock. The Preferred Shares converted to shares of common stock on August 24, 2017. The registration statement was declared effective on September 19, 2017.

 

Common stock

 

On February 10, 2017, in connection with the execution of a License Agreement, the Company entered into the Securities Purchase Agreement (“SPA”) with Seattle Genetics Inc. (“Seattle Genetics”). Under the SPA, Seattle Genetics purchased 3,000,000 shares (the “Common Shares”) of the Company’s common stock at a price of $4.90 per share, for aggregate proceeds of $14.7 million. Concurrently with the sale of the Common Shares, pursuant to the SPA, the Company also agreed to issue the three-year warrant to purchase an aggregate of 8,655,804 shares of common stock. On July 31, 2017, the Company filed a registration statement on Form S-3 to register the resale of 3,000,000 shares of Company’s common stock and 8,655,804 shares of common stock issuable upon the exercise of the warrants (in addition to the shares issuable upon the exchange of our Series A-1 Convertible Preferred Stock, as discussed above). The warrant was issued and became exercisable for cash on February 16, 2017 and was originally exercisable until February 10, 2020. On May 4, 2017, the Company and Seattle Genetics entered into a Termination Agreement, pursuant to which the Company and Seattle Genetics relinquished their respective rights under the License Agreement and agreed to amend the terms of the warrant to amend the expiration date from February 10, 2020 to December 31, 2017.

On October 11, 2016, the Company completed an underwritten public offering of 10 million shares of its common stock and accompanying warrants to purchase 10 million shares of common stock at a purchase price of $3.00 per unit, comprised of one share of common stock and one warrant. The Company received gross and net proceeds of $30.0 million and approximately $28.6 million, respectively after deducting the underwriting discounts and commissions and estimated expenses related to the offering payable. The warrants became exercisable six months following the date of issuance, and will expire on the second anniversary of the date of issuance and have an exercise price of $3.75. On the date of issuance, the fair value of these warrants was determined to be $7.3 million and recognized as a liability. The shares of common stock were sold pursuant to an effective shelf registration statement filed with the SEC. The warrants under certain situations require cash settlement by the Company. On July 18, 2017 and September 1, 2017, 900,000 and 675,000 warrants were exercised, respectively. The fair value of the 1,575,000 exercised warrants increased $2.6 million from June 30, 2017 to the dates of exercise which has been recognized in the accompanying condensed consolidated statements of comprehensive loss. The fair value of the warrants liabilities at the exercise dates of $11.2 million was reclassified to capital contributed in excess of par.

 

16


 

8.Accumulated Other Comprehensive Loss

The components of accumulated other comprehensive loss were as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

    

Currency

    

Net Unrealized Gains

    

Accumulated Other

 

 

 

Translation

 

 (Losses) on Available-

 

Comprehensive

 

 

 

Adjustments

 

for-Sale Securities

 

(Loss) Income

 

Balance, July 1, 2017

 

$

(234)

 

$

(69)

 

$

(303)

 

Amounts reclassified from accumulated other comprehensive  income (loss) (a)

 

 

(73)

 

 

32

 

 

(41)

 

Net current-period other comprehensive income

 

 

(73)

 

 

32

 

 

(41)

 

Balance, September 30, 2017

 

$

(307)

 

$

(37)

 

$

(344)

 

Balance, July 1, 2016

 

$

(172)

 

$

40

 

$

(132)

 

Other comprehensive income before reclassifications

 

 

 —

 

 

(48)

 

 

(48)

 

Amounts reclassified from accumulated other comprehensive income (a)

 

 

37

 

 

15

 

 

52

 

Net current-period other comprehensive income

 

 

37

 

 

(33)

 

 

 4

 

Balance, September 30, 2016

 

$

(135)

 

$

 7

 

$

(128)

 

 

 

 

 

 

 

 

 

 

 

 


(a)

For the three-month periods ended September 30, 2017 and 2016, less than $1 thousand and $15 thousand was reclassified from accumulated other comprehensive loss to interest and other income, respectively.

All components of accumulated other comprehensive loss are net of tax, except currency translation adjustments, which exclude income taxes related to indefinite investments in foreign subsidiaries.

9.Stock Incentive Plan

The Company has a stock incentive plan, the Immunomedics, Inc. 2014 Long-Term Incentive Plan (the “Plan”), that includes a discretionary grant program, a stock issuance program and an automatic grant program. The Plan was established to promote the interests of the Company, by providing eligible persons with the opportunity to acquire a proprietary interest in the Company as an incentive to remain with the organization and to align the employee’s interest with our stockholders.

Under the Plan option awards are generally granted with an exercise price equal to the closing price of the Company’s common stock on the date of grant. Those option awards generally vest based on four years of continuous service and have seven year contractual terms. Option awards that are granted to non-employee Board members under the annual option grant program are granted with an exercise price equal to the closing price of the Company’s common stock on the date of grant, are vested on the first anniversary of the date of grant, provided that such Board members remain Board members on such date, and have seven year contractual terms. At September 30, 2017 there were 14,028,257 shares of common stock reserved for possible future issuance under the Plan, both currently outstanding (4,687,745 shares) and those available to be issued for future grants (9,340,512 shares).

The weighted average fair value at the date of grant for options granted during the three-month periods ended September 30, 2017 and 2016 were $4.95 and $1.75 per share, respectively. The Company uses historical data to estimate employee forfeitures for employees, executive officers and outside directors. The expected term of options granted represents the period of time that options granted are expected to be outstanding and the expected stock price volatility is based on the Company’s daily stock trading history. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

17


 

Information concerning options for the three-month period ended September 30, 2017 is summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

    

 

    

 

 

    

Weighted

    

 

 

 

 

 

 

 

Weighted

 

Average

 

 

 

 

 

 

 

 

Average

 

Remaining

 

Aggregate

 

 

 

 

 

Exercise

 

Contractual

 

Intrinsic

 

 

 

Shares

 

Price

 

Life

 

Value

 

 

 

 

 

 

 

 

 

 

(in 000’s)

 

Outstanding, July 1, 2017

 

2,893,240

 

$

3.48

 

 

 

 

 

 

Granted

 

179,289

 

$

8.94

 

 

 

 

 

 

Exercised

 

(166,330)

 

$

3.68

 

 

 

 

 

 

Cancelled or forfeited

 

(14,750)

 

$

3.41

 

 

 

 

 

 

Outstanding, September 30, 2017

 

2,891,449

 

$

3.80

 

3.93

 

$

29,424

 

Exercisable, September 30, 2017

 

2,396,914

 

$

3.40

 

3.52

 

$

25,359

 

 

A summary of the Company’s non-vested restricted and performance stock units at September 30, 2017, and changes during the three-month period ended September 30, 2017 are presented below:

 

 

 

 

 

 

 

 

    

 

    

Weighted-Average

 

 

 

 

 

per Share of

 

Outstanding Non-Vested

 

 

 

Market Value on

 

Restricted and Performance Stock Units

 

Number of Awards

 

Grant Date

 

Non-vested at July 1, 2017

 

1,500,000

 

$

2.28

 

Restricted Units Granted(a)

 

35,366

 

$

8.46

 

Non-vested at September 30, 2017

 

1,535,366

 

$

2.42

 


(a)

For the three-month period ended September 30, 2017, 35,366 restricted stock units were awarded to the Company’s Chief Financial Officer, Chief Business Officer and one member of the Company’s Board of Directors.

The Company has 2,029,901 non-vested options, restricted stock units and performance stock units outstanding as of September 30, 2017. As of September 30, 2017, there was $2.5 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the Plan. That cost is being recognized over a weighted-average period of 1.53 years. The Company recorded $0.6 million and $0.8 million for total stock-based compensation expense for employees, executive officers and non-employee Board members for the three-month periods ended September 30, 2017 and 2016, respectively.

On August 20, 2015, the Company awarded an additional 214,205 restricted stock units to certain executive officers of the Company at the closing price on that date ($1.76 per share). These restricted stock units will vest over a four year period. As of September 30, 2017, there was $0.2 million of total unrecognized compensation costs related to non-vested share-based compensation arrangements granted under the Plan for these executive officers, excluding performance stock units. The cost is being recognized over a weighted-average period of 1.47 years. The Company recorded $32 thousand and $0.2 million for stock-based compensation expense for restricted stock units for the three-month periods ended September 30, 2017 and 2016, respectively.

As part of the Amended and Restated Employment Agreement with Dr. Goldenberg, the Company’s Chief Scientific Officer and Chief Patent Officer, which became effective July 1, 2015, (see Note 13), Dr. Goldenberg received a grant of 1,500,000 restricted stock units (the “Restricted Stock Units”), which shall

18


 

vest, if at all, after the three (3) year period commencing on the grant date of July 14, 2015, provided the applicable milestones based on achievement of certain market conditions (stock prices) are met and conditioned upon Dr. Goldenberg's continued employment through the vesting period, subject to the terms and conditions of the Restricted Stock Units Notice and the Restricted Stock Units Agreement and such other terms and conditions as set forth in the grant agreement. The Company recorded $0.3 million for the stock-based compensation for the three-month periods ended September 30, 2017 and 2016. There is $0.9 million of total unrecognized compensation cost related to these non-vested Restricted Stock Units granted as September 30, 2017. That cost is being recognized over a remaining weighted-average period of 0.79 years. The Company believes that a change in control occurred on or before May 4, 2017, as defined in Dr. Goldenberg's employment agreement, as a result of the new Board of Directors being seated. According to the terms of his employment agreement and notice of award, the Company believes that these 1.5 million restricted stock units did not vest since at the time of the change in control the actual price per share of the common stock had not achieved the specified target price required to trigger the vesting of the Restricted Stock Units. The Company understands that Dr. Goldenberg contests the Company’s interpretation of both the timing of the change in control and the vesting requirements of the Restricted Stock Units upon a change in control. The 1.5 million Restricted Stock Units are the subject of arbitration.

10.Geographic Segments

Immunomedics manages its operations as one line of business of researching, developing, manufacturing and marketing biopharmaceutical products, particularly antibody-based products for cancer, autoimmune and other serious diseases, and it currently reports as a single industry segment. Immunomedics conducts its research and development activities primarily in the United States. Immunomedics markets and sells LeukoScan® throughout Europe and in certain other countries outside the United States.

The following table presents financial information based on the geographic location of the facilities of Immunomedics as of and for the three -months ended September 30, 2017 and 2016, respectively ($ in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the three months ended

 

 

 

September 30, 2017

 

 

    

United 

    

 

    

 

 

 

 

States

 

Europe

 

Total

 

Total assets

 

$

151,917

 

$

1,442

 

$

153,359

 

Property and equipment, net

 

 

5,877

 

 

88

 

 

5,965

 

Revenues

 

 

164

 

 

526

 

 

690

 

Loss before taxes

 

 

(118,752)

 

 

(10)

 

 

(118,762)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of and for the three months ended

 

 

 

September 30, 2016

 

 

    

United

    

 

    

 

 

 

 

States

 

Europe

 

Total

 

Total assets

 

$

39,341

 

$