Summary of Significant Accounting Policies (Tables)

12 Months Ended

Dec. 31, 2018

Contract assets and contract liabilities

The following table presents changes in the Company’s contract assets and contract liabilities during the year ended December 31, 2018 (in thousands):


	Balance at								Balance at
	January 1, 2018								End
	(ASC 606 adoption)		Additions		Deductions		Impact of Netting		of Period
Contract asset	$	—	$	500	$	(5,000)	$	5,000	$	500
Contract liabilities	$	89,967	$	730	$	(14,895)	$	5,000	$	80,802

During the year ended December 31, 2018, the Company recognized the following revenues as a result of changes in contract asset and contract liability balances in the respective periods (in thousands):


		Year Ended
		December 31, 2018
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period	$	14,139
Performance obligations satisfied in previous periods	$	1,476

Schedule of assets that are required to be measured at fair value on a recurring basis

As of December 31, 2018, the Company held certain assets that are required to be measured at fair value on a recurring basis. The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of December 31, 2018 (in thousands):

Fair Value Measurements at December 31, 2018 Using

Quoted Prices in

Significant

Active Markets for

Significant Other

Unobservable

Identical Assets

Observable Inputs

Inputs

Total

(Level 1)

(Level 2)

(Level 3)

Cash equivalents

242,604

—

As of December 31, 2017, the Company held certain assets that are required to be measured at fair value on a recurring basis. The following table represents the fair value hierarchy for the Company’s financial assets measured at fair value on a recurring basis as of December 31, 2017 (in thousands):

Fair Value Measurements at December 31, 2017 Using

Quoted Prices in

Significant

Active Markets for

Significant Other

Unobservable

Identical Assets

Observable Inputs

Inputs

Total

(Level 1)

(Level 2)

(Level 3)

Cash equivalents

240,013

—

Schedule of inventory

Inventory at December 31, 2018 and 2017 is summarized below (in thousands):


	December 31,		December 31,
	2018		2017
Raw materials	$	—	$	40
Work in process		—		998
Total	$	—	$	1,038

Schedule of components of other accrued liabilities

Other accrued liabilities consisted of the following at December 31, 2018 and 2017 (in thousands):


	December 31,		December 31,
	2018		2017
Accrued contract payments	$	6,389	$	4,901
Accrued clinical trial costs		11,087		8,400
Accrued professional services		1,171		723
Accrued employee benefits		651		574
Accrued public reporting charges		164		156
Other current accrued liabilities		1,003		1,013
Total	$	20,465	$	15,767

Schedule of estimated useful lives of property and equipment


Machinery and equipment		5 years
Computer hardware and software		3 years
Furniture and fixtures		5 years
Leasehold improvements		Shorter of remaining lease term or 7 years

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

The Company’s common stock equivalents, as calculated in accordance with the treasury‑stock method for the options and unvested restricted stock and the if-converted method for the convertible notes, are shown in the following table (in thousands):


			Six Months
			Ended	Year Ended
	Years Ended December 31,		December 31,	June 30,
	2018	2017	2016	2016
Options outstanding to purchase common stock, shares issuable under the employee stock purchase plan, and unvested restricted stock at end of period	17,380	14,290	13,878	11,919
Common stock equivalents under treasury stock method for options, shares issuable under the employee stock purchase plan, and unvested restricted stock	3,001	1,579	1	735
Shares issuable upon conversion of convertible notes at end of period	501	501	23,878	23,878
Common stock equivalents under if-converted method for convertible notes	501	501	23,878	718

Schedule of risk-free rate of the stock options based on US Treasury rate


					Six Months
	Years Ended				Ended		Year Ended
	December 31,				December 31,		June 30,
	2018		2017		2016		2016
Dividend	None		None		None		None
Volatility	71.02	%	67.34	%	65.63	%	66.34	%
Risk-free interest rate	2.73	%	2.00	%	1.29	%	1.80	%
Expected life (years)	6.0		6.0		6.3		6.3

Summary of stock option activity

A summary of option activity under the option plans as of December 31, 2018, 2017 and 2016, and changes during the years ended December 31, 2018 and 2017, six-month period ended December 31, 2016, and the fiscal year ended June 30, 2016 is presented below (in thousands, except weighted‑average data):


		Weighted-		Weighted-
	Number	Average		Average	Aggregate
	of Stock	Exercise		Remaining	Intrinsic
	Options	Price		Life in Yrs.	Value
Outstanding at June 30, 2015	9,689	$	12.49	6.76	$	—
Granted	3,340	$	14.34
Exercised	(555)		9.30
Forfeited/Canceled	(661)		14.84
Outstanding at June 30, 2016	11,813		13.03	6.82	$	—
Outstanding at June 30, 2016—vested or unvested and expected to vest	11,475		13.05	6.76	$	—
Exercisable at June 30, 2016	6,453	$	12.63	5.30		—
Outstanding at June 30, 2016	11,813	$	13.03
Granted	3,536		2.90
Exercised	—		—
Forfeited/Canceled	(1,670)		10.64
Outstanding at December 31, 2016	13,679		10.70	6.55	$	23
Outstanding at December 31, 2016—vested or unvested and expected to vest	13,516		10.76	6.52	$	22
Exercisable at December 31, 2016	7,898	$	13.15	4.70		—
Outstanding at December 31, 2016	13,679	$	10.70
Granted	1,589		3.21
Exercised	(191)		3.42
Forfeited/Canceled	(3,106)		10.33
Outstanding at December 31, 2017	11,971		9.92	6.17	$	13,513
Outstanding at December 31, 2017—vested or unvested and expected to vest	11,881	$	9.96	6.15	$	13,283
Exercisable at December 31, 2017	7,996	$	12.16	4.97	$	3,733
Outstanding at December 31, 2017	11,971	$	9.92
Granted	5,513		10.36
Exercised	(742)		4.67
Forfeited/Canceled	(1,178)		11.49
Outstanding at December 31, 2018	15,564	$	10.20	6.46	$	5,818
Outstanding at December 31, 2018—vested or unvested and expected to vest	15,386	$	10.21	6.43	$	5,781
Exercisable at December 31, 2018	8,405	$	11.47	4.45	$	3,122

Summary of restricted stock activity

A summary of restricted stock activity under the option plans as of December 31, 2018, 2017, and 2016, and changes during the year ended December 31, 2018 and 2017, and the six-month period ended December 31, 2016, and the fiscal year ended June 30, 2016 is presented below (in thousands, except weighted‑average data):


	Number of	Weighted-
	Restricted	Average Grant
	Stock Shares	Date Fair Value
Unvested at June 30, 2015	50	$	9.23
Awarded	75		5.65
Vested	(19)		10.13
Unvested at June 30, 2016	106	$	6.54
Awarded	118		3.15
Vested	—		—
Forfeited	(25)		7.52
Unvested at December 31, 2016	199	$	4.41
Awarded	2,253		2.71
Vested	(25)		5.87
Forfeited	(108)		2.68
Unvested at December 31, 2017	2,319	$	2.82
Vested	(503)		2.64
Unvested at December 31, 2018	1,816	$	2.87

Summary of vested stock option activity

A summary of option activity for options vested during the years ended December 31, 2018 and 2017 and the six months ended December 31, 2016, and the fiscal year ended June 30, 2016 is presented below (in thousands):


	Years Ended December 31,				Six Months Ended December 31,		Year Ended June 30,
	2018		2017		2016		2016
Total fair value of options vested	$	7,496	$	10,964	$	17,121	$	15,298
Total intrinsic value of options exercised		3,787		598		—		3,142
Cash received for exercise of stock options		4,301		650		—		5,161

Schedule of percentage of total revenues recognized from each significant customer


	Years Ended December 31,				Six Months Ended December 31,		Year Ended June 30,
Collaborative Partner:	2018		2017		2016		2016
Bayer	—	%	—	%	—	%	17	%
CytomX	8	%	13	%	—	%	—	%
Debiopharm	2	%	26	%	—	%	—	%
Lilly	2	%	1	%	4	%	11	%
Novartis	2	%	—	%	24	%	1	%
Roche	60	%	24	%	60	%	43	%
Sanofi	—	%	31	%	—	%	—	%
Takeda	23	%	4	%	8	%	16	%

ASU 2014-09

Accounting Policy Schedules

Schedule of financial statement impact of adopting ASC 606

IMMUNOGEN, INC.

ADJUSTED CONSOLIDATED BALANCE SHEET

In thousands, except per share amounts


			Adjustments		Balance at
	December 31,		Due to		January 1,
	2017		ASC 606		2018
ASSETS
Cash and cash equivalents	$	267,107	$	—	$	267,107
Accounts receivable		2,649		—		2,649
Unbilled revenue		2,580		—		2,580
Non-cash royalty receivable		—		8,900		8,900
Inventory		1,038		—		1,038
Prepaid and other current assets		2,967		—		2,967
Total current assets		276,341		8,900		285,241
Property and equipment, net of accumulated depreciation		14,538		—		14,538
Other assets		3,797		—		3,797
Total assets	$	294,676	$	8,900	$	303,576
LIABILITIES AND SHAREHOLDERS’ DEFICIT
Accounts payable	$	8,562	$	—	$	8,562
Accrued compensation		11,473		—		11,473
Other accrued liabilities		15,767		—		15,767
Current portion of deferred lease incentive		784		—		784
Current portion of liability related to the sale of future royalties, net		17,779		—		17,779
Current portion of deferred revenue		1,405		41		1,446
Total current liabilities		55,770		41		55,811
Deferred lease incentive, net of current portion		5,129		—		5,129
Deferred revenue, net of current portion		93,752		(5,231)		88,521
Convertible 4.5% senior notes, net		2,050		—		2,050
Liability related to the sale of future royalties, net		151,634		—		151,634
Other long-term liabilities		4,236		—		4,236
Total liabilities		312,571		(5,190)		307,381
Shareholders’ deficit:
Preferred stock		—		—		—
Common stock		1,325		—		1,325
Additional paid-in capital		1,009,362		—		1,009,362
Accumulated deficit		(1,028,582)		14,090		(1,014,492)
Total shareholders’ deficit		(17,895)		14,090		(3,805)
Total liabilities and shareholders’ deficit	$	294,676	$	8,900	$	303,576

Under the previous guidance, the Company deferred revenue pertaining to the transfer of certain exclusive commercialization and development licenses, and to account for these agreements under the legacy GAAP, the Company identified the deliverables included within the agreements and evaluated which deliverables represented separate units of accounting based on whether certain criteria were met, including whether the delivered element had stand-alone value to the collaborator. The consideration received was allocated among the separate units of accounting, and the applicable revenue recognition criteria were applied to each of the separate units. Under ASC 606, the Company recognizes revenues from non-refundable, up-front fees allocated to the license when the license is distinct from other performance obligations, is transferred to the customer and the customer is able to use and benefit from the license.

Under the previous guidance, milestones that were considered substantive because the Company contributed significant effort to the achievement of such milestones were recognized as revenue upon achievement of the milestone. Under ASC 606, if the achievement of a milestone is considered a direct result of the Company’s efforts to satisfy a performance obligation or transfer a distinct good or service, the associated milestone value is allocated to that distinct good or service. If a milestone is not specifically related to the Company’s effort to satisfy a performance obligation or transfer a distinct good or service, the amount is allocated to all performance obligations using the relative standalone selling price method.

Under ASC 606, the Company also evaluates the milestone to determine whether the milestone is probable of being achieved and estimates the amount to be included in the transaction price. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price to be allocated, otherwise, such amounts are constrained and excluded from the transaction price until the probable threshold is met. The Company determined it was probable that a future $5.0 million milestone for Takeda enrolling a patient in a Phase I trial as of the date of adoption would occur and, accordingly, recorded a reduction to accumulated deficit of $4.6 million related to this previously delivered license as approximately $400,000 was allocated to undelivered rights to future technological improvements. The $5.0 million contract asset recorded for the probable milestone was netted against contract liabilities related to the specific contract.

Prior to the adoption of ASC 606, the Company recognized royalty revenue when it could reliably estimate such amounts and collectability was reasonably assured. As such, the Company generally recognized revenue for sales royalties in the quarter the amounts were reported to the Company by its licensees, or one quarter following the quarter in which sales by the Company’s licensees occurred. Under ASC 606, if the license is deemed to be the predominant item to which the royalties relate, the Company will recognize revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). As a result of recognizing royalties for sales in the fourth quarter of fiscal year 2017, the Company recognized a reduction to accumulated deficit of $8.9 million.

The net impact of these changes resulted in a $14.1 million reduction to accumulated deficit, a $5.2 million reduction to deferred revenue and an $8.9 million increase in non-cash royalty receivable.

The adoption of ASC 606 resulted in the acceleration of revenue through December 31, 2017, which in turn reduced the related net deferred tax asset by $3.9 million. As the Company fully reserves its net deferred tax assets, the impact was offset by the valuation allowance.

Impact of ASC 606 Revenue Guidance on Financial Statement Line Items

The following tables compare the reported condensed consolidated balance sheet and statement of operations, as of and for the year ended December 31, 2018, to the pro-forma amounts had the previous guidance been in effect:

IMMUNOGEN, INC.

PRO FORMA CONSOLIDATED BALANCE SHEET

In thousands, except per share amounts


	As of December 31, 2018
			Pro forma as if the
			previous accounting
	As reported		was in effect
ASSETS
Cash and cash equivalents	$	262,252	$	262,252
Accounts receivable		1,701		1,701
Unbilled revenue		617		617
Contract asset		500		—
Non-cash royalty receivable		9,249		—
Inventory		—		—
Prepaid and other current assets		4,462		4,462
Total current assets		278,781		269,032
Property and equipment, net of accumulated depreciation		12,891		12,891
Other assets		3,709		3,709
Total assets	$	295,381	$	285,632
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Accounts payable	$	11,365	$	11,365
Accrued compensation		11,796		11,796
Other accrued liabilities		20,465		20,465
Current portion of deferred lease incentive		837		837
Current portion of liability related to the sale of future royalties, net		25,880		25,880
Current portion of deferred revenue		317		297
Total current liabilities		70,660		70,640
Deferred lease incentive, net of current portion		4,675		4,675
Deferred revenue, net of current portion		80,485		83,710
Convertible 4.5% senior notes, net		2,064		2,064
Liability related to the sale of future royalties, net		122,345		122,345
Other long-term liabilities		4,180		4,180
Total liabilities		284,409		287,614
Shareholders’ equity (deficit):
Preferred stock		—		—
Common stock		1,494		1,494
Additional paid-in capital		1,192,813		1,192,813
Accumulated deficit		(1,183,335)		(1,196,289)
Total shareholders’ equity (deficit)		10,972		(1,982)
Total liabilities and shareholders’ equity (deficit)	$	295,381	$	285,632

As a result of adoption of ASC 606, a receivable is recorded for royalties earned during the current quarter rather than one quarter in arrears under the previous guidance. Deferred revenue increased under ASC 606 due to a greater amount of the transaction prices being allocated to the future technological improvement rights under ASC 606.

IMMUNOGEN, INC.

PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

In thousands, except per share amounts


	Year ended
	December 31, 2018
			Pro forma as if the
			previous accounting
	As reported		was in effect
Revenues:
License and milestone fees	$	15,280	$	16,765
Non-cash royalty revenue related to the sale of future royalties		32,154		31,805
Research and development support		1,377		1,377
Clinical materials revenue		4,635		4,635
Total revenues		53,446		54,582
Operating Expenses:
Research and development		174,456		174,456
General and administrative		36,746		36,746
Restructuring charge		3,693		3,693
Total operating expenses		214,895		214,895
Loss from operations		(161,449)		(160,313)
Investment income, net		4,227		4,227
Non-cash interest expense on liability related to the sale of future royalties and convertible senior notes		(10,631)		(10,631)
Interest expense on convertible senior notes		(95)		(95)
Other (expense) income, net		(895)		(895)
Net loss	$	(168,843)	$	(167,707)
Basic and diluted net loss per common share	$	(1.21)	$	(1.20)