EPIZYME, INC. Our management's discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements included in this Annual Report on Form 10-K, which have been prepared by us in accordance with accounting principles generally accepted inthe United States , or GAAP, and with Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended. This discussion and analysis should be read in conjunction with these consolidated financial statements and the notes thereto included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report on Form 10-K, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in Part I, Item 1A. Risk Factors of this Annual Report on Form 10-K, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
We are a biopharmaceutical company that is committed to rewriting treatment for people with cancer and other serious diseases through the discovery, development, and commercialization of novel epigenetic medicines. By focusing on the genetic drivers of disease, our science seeks to match targeted medicines with the patients who need them. InJanuary 2020 , theU.S. Food and Drug Administration , or FDA, granted accelerated approval of TAZVERIK™ (tazemetostat) for the treatment of adult and pediatric patients aged 16 years and older with metastatic or locally advanced epithelioid sarcoma not eligible for complete resection. This approval was based on overall response rate and duration of response shown in the epithelioid sarcoma cohort of our Phase 2 trial in patients with INI1-negative tumors. The commercial launch is underway, and we have made TAZVERIK available to eligible patients and their physicians inthe United States . As part of the accelerated approval for epithelioid sarcoma, continued approval for this indication is contingent upon verification and description of clinical benefit in a confirmatory trial. To provide this confirmatory evidence to support a full approval of tazemetostat for this indication, we are conducting a global, randomized, controlled Phase 1b/3 confirmatory trial assessing TAZVERIK in combination with doxorubicin compared with doxorubicin plus placebo as a front-line treatment for epithelioid sarcoma. The safety run-in portion of the trial is underway, and we expect to advance the trial into the Phase 3 portion in 2020. InDecember 2019 , we submitted a New Drug Application, or NDA, to the FDA for accelerated approval of TAZVERIK for patients with relapsed or refractory follicular lymphoma, or FL, who have received at least two prior lines of systemic therapy. InFebruary 2020 , the NDA was accepted for filing by the FDA. The FDA granted priority review and has designated the application as a supplemental NDA, or sNDA, with a Prescription Drug User Fee Act, or PDUFA, target action date ofJune 18, 2020 . Priority review is granted to investigational therapies that, if approved, may offer significant improvements in the treatment, prevention or diagnosis of a serious condition. The sNDA submission is based primarily on efficacy and safety data from the cohorts evaluating TAZVERIK as a monotherapy for patients with relapsed or refractory FL, both with and without EZH2 activating mutations, who have received two or more prior systemic therapies in our multi-cohort Phase 2 trial in patients with relapsed or refractory non-Hodgkin's lymphoma, or NHL. As part of our accelerated approval strategy for FL, we have initiated a single trial to provide confirmatory evidence to support a full approval submission of TAZVERIK for this indication. The trial is a global, randomized, controlled Phase 1b/3 clinical trial comparing TAZVERIK in combination with the FDA-approved chemotherapeutic-free regimen known as R2 (REVLIMID plus rituximab) compared with R2 plus placebo in FL patients who have been treated with at least one prior systemic therapy. The safety run-in portion of the trial is underway, and we expect to advance it into the Phase 3 portion in 2020. 78 -------------------------------------------------------------------------------- Through our planned development efforts, our intention is to make TAZVERIK available in all lines of treatment for patients with FL. We plan to leverage the confirmatory trial to expand TAZVERIK into the second-line treatment setting. In collaboration withThe Lymphoma Study Association , or LYSA, and based on clinical activity observed with TAZVERIK in combination with R-CHOP as a front-line treatment for patients with high risk diffuse large B-cell lymphoma, or DLBCL, we plan to investigate this combination as a front-line treatment for high-risk patients with FL. In addition, we are finalizing plans for investigator-sponsored studies to evaluate tazemetostat in combination with rituximab, venetoclax or BTK inhibitors for the treatment of patients with FL in the third-line or later treatment settings. Tazemetostat is an oral, first in class, selective small molecule inhibitor of the EZH2 histone methyltransferase, or HMT, that we are developing for the treatment of a broad range of cancer types in multiple treatment settings. Tazemetostat has shown meaningful clinical activity as an investigational monotherapy in multiple cancer indications and has been generally well-tolerated across clinical trials to date. We believe tazemetostat is a "pipeline in a product" opportunity and plan to explore its utility as a monotherapy and in combinations through both company and investigator-sponsored studies in additional indications, including:
• Lymphomas and B-cell malignancies, such as DLBCL, mantle cell lymphoma,
or MCL, chronic lymphocytic leukemia, or CLL, chronic myeloid leukaemia,
or CML, and others;
• Mutationally defined solid tumors, such as chordoma, melanoma,
mesothelioma, and tumors harboring an EZH2 or SWI/SNF alteration;
• Chemotherapy or treatment-resistant tumors, such as triple-negative
breast cancer, small cell lung cancer, ovarian cancer, and metastatic
castration-resistant prostate cancer; and,
• Immuno-oncology-sensitive tumors, such as colorectal cancer, bladder
cancer, soft tissue sarcomas and non-small cell lung cancer.
We own the global development and commercialization rights to tazemetostat
outside of
TAZVERIK is available to eligible patients inthe United States via a specialty distribution network. To commercialize TAZVERIK for the epithelioid sarcoma indication inthe United States , we have built a focused field presence and marketing capabilities. This includes an efficiently sized field-based organization of 19 individuals. We have initiated our FL launch readiness activities and are expanding our infrastructure to support the launch and marketing of tazemetostat for FL inthe United States , if approved. Our sales leadership team is in place, and we have completed our hiring of our sales representatives. For geographies outsidethe United States , we are evaluating the most efficient path to reach patients, including through potential collaborations. Tazemetostat is covered by claims ofU.S. and European composition of matter patents, which are expected to expire in 2032, exclusive of any patent term or other extensions. Tazemetostat has been granted Fast Track designation by the FDA in patients with relapsed or refractory FL, relapsed or refractory DLBCL with EZH2 activating mutations and metastatic or locally advanced epithelioid sarcoma who have progressed on or following an anthracycline-based treatment regimen. The FDA has also granted orphan drug designation to tazemetostat for the treatment of patients with FL, malignant rhabdoid tumors, or MRT, soft tissue sarcoma, or STS, and mesothelioma. The orphan drug designation for the treatment of MRT applies to INI1-negative MRT as well as SMARCA4-negative malignant rhabdoid tumor of ovary, or MRTO. Beyond tazemetostat, we are progressing preclinical efforts to pursue additional development candidates for our pipeline and to further support our leadership position in epigenetics. InNovember 2018 , we entered a strategic collaboration withBoehringer Ingelheim International GmbH , or Boehringer Ingelheim, focused on the research, development and commercialization of novel small molecule inhibitors, discovered by us, directed toward two previously unaddressed epigenetic targets as potential therapies for people with cancer. Specifically, these targets are enzymes within the helicase and histone acetyltransferase, or HAT, families that when dysregulated have been linked to the development of cancers that currently lack therapeutic options. We also have collaborations withGlaxo Group Limited (an affiliate of GlaxoSmithKline), or GSK, focused on the development of PRMT inhibitors discovered by us, and with Celgene Corporation, which was recently acquired by Bristol-Myers Squibb, andCelgene RIVOT Ltd. , an affiliate of Celgene Corporation, which we collectively refer to as Celgene, focused on the development of pinometostat and small molecule inhibitors directed to three HMT targets. 79
-------------------------------------------------------------------------------- ThroughDecember 31, 2019 , we have raised an aggregate of$1,280.7 million to fund our operations. This included$242.1 million of non-equity funding through our collaboration agreements,$123.1 million of funding received through agreements withRoyalty Pharma andPharmakon Advisors consisting of$100.0 million in consideration received and$25.0 million for the first tranche of borrowings less debt issuance costs of$1.7 million ,$839.5 million from the sale of common stock and series A Convertible Preferred Stock in our public offerings and$76.0 million from the sale of redeemable convertible preferred stock in private financings prior to our initial public offering inMay 2013 .
As of
We commenced active operations in early 2008, and since inception, have incurred significant operating losses. As ofDecember 31, 2019 , our accumulated deficit totaled$757.0 million . We expect to continue to incur significant expenses and operating losses over the next several years. Our net losses may fluctuate significantly from quarter to quarter and year to year. We expect our expenses to increase in connection with our ongoing activities, particularly as we expect to incur significant commercialization expenses related to product manufacturing, marketing, sales and distribution. In addition, we expect our expenses to increase as we fund our tazemetostat development program; make any milestone payments provided for and achieved under the amended and restated collaboration and license agreement with Eisai; continue our collaboration with Celgene; and continue research and development and initiate clinical trials of, and seek regulatory approval for, any future product candidates.
Funding Agreements with
We executed a purchase agreement with RPI onNovember 4, 2019 , or the RPI Purchase Agreement. Pursuant to the RPI Purchase Agreement, we sold to RPI 6,666,667 shares of our common stock and a warrant to purchase up to 2,500,000 shares of our common stock at an exercise price of$20.00 per share, or the Warrant. We also sold our rights to receive royalties from Eisai with respect to net sales by Eisai of tazemetostat products inJapan , or the Japan Royalty, pursuant to the amended and restated collaboration and license agreement between us and Eisai, dated as ofMarch 12, 2015 , or the Eisai License Agreement. In consideration for the sale of shares of our common stock, the Warrant and the Japan Royalty, RPI paid us$100.0 million upon the closing of the RPI Purchase Agreement inNovember 2019 . In addition, RPI agreed, in connection with RPI's acquisition from Eisai of the right to receive royalties from us under the Eisai License Agreement, to reduce our royalty obligation by low single digits upon the achievement of specified annual net sales levels. We also had the option to sell to RPI$50.0 million of shares of common stock for an 18-month period beginningNovember 4, 2019 , or the Put Option. OnFebruary 11, 2020 , we sold 2,500,000 shares of common stock to RPI for an aggregate of$50.0 million in proceeds at a sale price of$20.00 per share of common stock pursuant to the Put Option. OnNovember 4, 2019 , we also entered into a Loan Agreement with BioPharma Credit PLC, or the Collateral Agent, andBioPharma Credit Investments V (Master) LP , or the Lenders, providing for up to$70.0 million in secured term loans to be advanced in up to three tranches, or the Loan Agreement. We may borrow$25.0 million under each of the first two tranches and$20.0 million under the third tranche. We also have the right to request up to an additional$300.0 million in secured term loans, subject to the approval ofBioPharma Credit Investments V (Master) LP and BioPharma Credit PLC, following FDA approval of tazemetostat for the treatment of FL inthe United States , provided that we have not prepaid any outstanding term loans at the time of such request and such request is made beforeNovember 18, 2021 . OnNovember 18, 2019 , we borrowed the first tranche of$25.0 million , or the Tranche A Loan. Our right to borrow, and the Lenders' obligation to lend, under the second tranche is subject to FDA approval of tazemetostat for the treatment of epithelioid sarcoma inthe United States , among other closing conditions. Our right to borrow, and the Lenders' obligation to lend, under the third tranche is subject to FDA approval of tazemetostat for the treatment of FL inthe United States , among other closing conditions. Unless the conditions are satisfied and the amounts are borrowed prior to such dates, the Lenders' obligation to lend funds under the second tranche will expire onMarch 31, 2020 , and the Lenders' obligation to lend funds under the third tranche will expire onDecember 31, 2020 . We expect to borrow the second tranche of$25.0 million inMarch 2020 in conjunction with the Eisai milestone payment that was triggered upon receipt of FDA approval of our NDA of tazemetostat for the treatment of epithelioid sarcoma. 80 -------------------------------------------------------------------------------- Under the terms of the Loan Agreement, we are required to make quarterly interest only payments following the closing of Tranche A Loan and eight equal quarterly payments of principal startingFebruary 28, 2023 throughNovember 18, 2024 . Interest rates for the term loans will be determined by reference to a Eurodollar rate plus 7.75% above such Eurodollar rate. The Eurodollar rate will have a 2.00% floor. The term loans will be due in eight equal quarterly principal payments commencing on the first business day on or following the 39th month anniversary ofNovember 18, 2019 . All accrued and unpaid interest under any tranches actually borrowed will be due and payable on the 60th month anniversary ofNovember 18, 2019 . We may prepay the term loans before maturity in whole or in part. If we prepay any term loan, in whole or in part, during the first 36 months afterNovember 18, 2019 , then we must pay a prepayment premium equal to the greater of the amount of interest that would have accrued on the principal amount to be prepaid in the absence of any prepayment and a premium equal to 0.03 multiplied by the principal amount to be prepaid. If we prepay a term loan, in whole or in part, between the 36th month and 48th month afterNovember 18, 2019 , then we must pay a prepayment premium equal to 0.02 multiplied by the after amount to be prepaid. If we prepay a term loan, in whole or in part, between the 48th month and 60th month fromNovember 18, 2019 , then we must pay a prepayment premium equal to 0.01 multiplied by the principal amount to be prepaid.
The obligations under the Loan Agreement are secured by a first priority security interest in and a lien on substantially all of our assets, subject to certain exceptions.
The Loan Agreement contains certain customary representations and warranties, affirmative and negative covenants and events of default applicable to us and our subsidiaries. We will be required to comply at all times with a minimum liquidity financial covenant. If an event of default occurs and is continuing, the Collateral Agent may, among other things, accelerate the loans and foreclose on the collateral. Collaborations Refer to Item 1, Business--Our Collaborations and Note 10, Collaborations, of the notes to our consolidated financial statements in Item 15 of this Annual Report on Form 10-K for a description of the key terms of our arrangements with Boehringer Ingelheim, Eisai, Celgene and GSK, as well as the related accounting and revenue recognition considerations.
Results of Operations for the Years Ended
Collaboration Revenue
The following is a comparison of collaboration revenue for the years ended
Year Ended December 31,
2019 2018 Change %
(In millions)
Collaboration revenue $ 23.8 $ 21.7 $ 2.1 9.7 %
Year Ended December 31,
2018 2017 Change %
(In millions)
Collaboration revenue $ 21.7 $ 10.0 $ 11.7 117.0 %
Our revenue during the periods consisted of collaboration revenue, including
amounts recognized from deferred revenue related to upfront payments for
licenses or options to obtain licenses in the future, research and development
services revenue earned and milestone payments earned under collaboration and
license agreements with our collaboration partners.
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The following tables summarize our collaboration revenue, by collaboration
partner, for the years ended
Year Ended December 31,
2019 2018 Change %
(In millions)
Collaboration Partner
GSK: $ - $ 20.0 $ (20.0 ) -100.0 %
BI: 23.8 1.7 22.1 1300.0 %
$ 23.8 $ 21.7 $ 2.1 9.7 %
Year Ended December 31,
2018 2017 Change %
(In millions)
Collaboration Partner
GSK: $ 20.0 $ 10.0 $ 10.0 100.0 %
BI: 1.7 - 1.7 100.0 %
$ 21.7 $ 10.0 $ 11.7 117.0 %
Collaboration revenue for the year ended December 31, 2019 increased $2.1
million as compared to the year ended December 31, 2018 , primarily as a result
of $23.8 million related to milestones and services under our agreement with
Boehringer Ingelheim, as compared to the achievement of a $12.0 million
milestone and a $8.0 million milestone under our agreement with GSK and $1.7
million related to the commencement of services under our agreement with
Boehringer Ingelheim during 2018. Collaboration revenue for the year ended
December 31, 2018 increased $11.7 million as compared to the year ended
December 31, 2017 , primarily as a result of the achievement of a $12.0 million
milestone and a $8.0 million milestone under our agreement with GSK and $1.7
million related to the commencement of services under our agreement with
Boehringer Ingelheim during 2018 as compared to the achievement of a $10.0
million milestone under our agreement with GSK in 2017.
GSK. Under the agreement, we have received and recognized collaboration revenue
totaling $89.0 million , consisting of upfront payments, fixed research funding,
research and development services and preclinical and research milestone
payments. As of December 31, 2019 , for the two remaining targets, we are
eligible to receive up to $50.0 million in clinical development milestone
payments, up to $197.0 million in regulatory milestone payments and up to $128.0
million in sales-based milestone payments. As a result of the termination of the
agreement as it relates to the third target, we will receive no additional
payments related to that target. In addition, GSK is required to pay us
royalties, at percentages from the mid-single digits to the low double-digits,
on a licensed product-by-licensed product basis, on worldwide net product sales,
subject to reduction in specified circumstances. Due to the uncertainty of
pharmaceutical development and the high historical failure rates generally
associated with drug development, we may not receive any additional milestone
payments or royalty payments from GSK. GSK became solely responsible for
development and commercialization for each licensed target in the collaboration
when the research term ended on January 8, 2015 .
Boehringer Ingelheim. In the years ended December 31, 2019 and 2018, we
recognized $23.8 million and $1.7 million , respectively, in collaboration
revenue as part of our Boehringer Ingelheim collaboration. Under the agreement
we received $15.0 million in an upfront payment from Boehringer Ingelheim for
our license to inhibitor technology of two undisclosed targets and $5.0 million
in research funding in 2019. The revenue was recognized as we performed research
services through the end of 2019. The research period expired on December 31,
2019 , as Boehringer Ingelheim did not elect to extend the research period
through December 31, 2020 , and any future revenue will be related to milestone
payments.
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Celgene. In the years ended
As ofDecember 31, 2019 , we have total deferred revenue of$3.8 million in noncurrent liabilities on our consolidated balance sheet related to our Celgene collaboration, attributable to options for the non-pinometostat targets that are subject to the collaboration.
Research and Development
Research and development expenses consist of expenses incurred in performing research and development activities, including clinical trials and related clinical manufacturing expenses, fees paid to external providers of research and development services, third-party clinical research organizations, or CROs, compensation and benefits for full-time research and development employees, facilities expenses, overhead expenses, and other outside expenses. Most of our research and development costs are external costs, which we track on a program-by-program basis. Our internal research and development costs are primarily compensation expenses for our full-time research and development employees, including stock-based compensation expense. In our early-stage research, we identify and prioritize novel CMPs that are implicated in cancer and other diseases, and seek to develop potent and selective small molecule inhibitors of these targets. During this phase of research, our external costs primarily relate to lead discovery, biology, drug metabolism and pharmacokinetics and chemistry services from a multinational network of third-party providers of research and development services. As our product candidates progress into preclinical and clinical development, external costs are driven by clinical trial costs, manufacturing expenses, and third-party research and development expenses. In circumstances where our collaboration and license agreements provide for equally co-funded global development under joint risk sharing collaborations, and where we are the study sponsor, such as our Celgene collaboration, amounts received for co-funding are recorded as a reduction to research and development expense.
The following is a comparison of research and development expenses for the years
ended
Year Ended December 31,
2019 2018 Change %
(In millions)
Research and development $ 132.6 $ 105.8 $ 26.8 25.4 %
Year Ended December 31,
2018 2017 Change %
(In millions)
Research and development $ 105.8 $ 109.7 $ (3.9 ) -3.6 %
During the year ended December 31, 2019 , total research and development expenses
increased by $26.8 million compared to the year ended December 31, 2018 ,
primarily due to the payment of $20.0 million in clinical development milestones
to Eisai, increases in tazemetostat manufacturing costs and the buildout of our
regulatory and late stage development groups, offset by decreases in clinical
trial expenses.
During the year ended December 31, 2018 total research and development expenses
decreased by $3.9 million compared to the year ended December 31, 2017 ,
primarily due to decreases in our discovery research activities due to a greater
focus on our most advanced programs and decreases in clinical trial expenses,
offset by greater tazemetostat manufacturing costs.
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The following table illustrates the components of our research and development
expenses:
Year Ended December 31,
Product Program 2019 2018 Change %
(In millions)
External research and development
expenses:
Tazemetostat and related EZH2 programs $ 67.8 $ 49.5 18.3 37.0 %
Pinometostat and related DOT1L programs 0.3 0.0 0.3 100.0
Discovery and preclinical stage product
programs, collectively 18.7 16.0 2.7 16.9
Unallocated personnel and other expenses 45.8 40.3 5.5 13.6
Total research and development expenses $ 132.6 $ 105.8 $ 26.8 25.3 %
Year Ended December 31,
Product Program 2018 2017 Change %
(In millions)
External research and development
expenses:
Tazemetostat and related EZH2 programs $ 49.5 $ 54.2 $ (4.7 ) -8.7 %
Pinometostat and related DOT1L programs 0.0 0.8 (0.8 ) -100.0
Discovery and preclinical stage product
programs, collectively 16.0 17.9 (1.9 ) -10.6
Unallocated personnel and other expenses 40.3 36.8 3.5 9.5
Total research and development expenses
$ (3.9 ) -3.6 % External research and development costs include external manufacturing costs related to the acquisition of active pharmaceutical ingredient and manufacturing of clinical drug supply, ongoing clinical trial costs, discovery and preclinical research in support of the tazemetostat program and expenses associated with our companion diagnostic program. External research and development expenses for tazemetostat and related EZH2 programs increased$18.3 million for the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 . The increase in tazemetostat related spending in the year endedDecember 31, 2019 related to greater tazemetostat manufacturing costs and the build out of our regulatory and late stage development groups, offset by decreases in clinical trial expenses. External research and development expenses for tazemetostat and related EZH2 programs decreased$4.7 million for the year endedDecember 31, 2018 compared to the year endedDecember 31, 2017 . The decrease in tazemetostat related spending in the year endedDecember 31, 2018 is primarily a result of decreased clinical spending as a result of the partial clinical holds on the enrollment of new patients inthe United States ,France andGermany , offset by an increase in tazemetostat manufacturing costs. External research and development expenses for pinometostat and related DOT1L programs for the year endedDecember 31, 2019 increased$0.3 million compared to the year endedDecember 31, 2018 . The costs incurred in the year endedDecember 31, 2019 were primarily associated with costs attributed to the CRADA with the NCI to evaluate pinometostat in clinical trials in a variety of hematologic malignancies and solid tumors. There were no costs incurred related to pinometostat in 2018. External research and development expenses for pinometostat and related DOT1L programs for the year endedDecember 31, 2018 decreased$0.8 million when compared to the year endedDecember 31, 2017 . There were no costs incurred related to pinometostat in 2018. The costs incurred related to pinometostat in the year endedDecember 31, 2017 were primarily associated with costs attributed to the CRADA with the NCI. External research and development expenses for discovery and preclinical stage product programs increased$2.7 million for the year endedDecember 31, 2019 compared to the year endedDecember 31, 2018 , primarily related to increased development activities related to our G9a preclinical program, offset by reduced spending for discovery research activities. External research and development expenses for discovery and preclinical stage product programs decreased$1.9 million for the year endedDecember 31, 2018 compared to the year endedDecember 31, 2017 , primarily related to decreased spending for discovery research activities, offset by increased development activities related to our G9a preclinical program. 84
-------------------------------------------------------------------------------- Unallocated personnel and other expenses are comprised of compensation expenses for our full-time research and development employees and other general research and development expenses. Unallocated personnel and other expenses for the year endedDecember 31, 2019 increased$5.5 million compared to the year endedDecember 31, 2018 . The increase is a result of the allocation of expenses to projects and increases in facilities and equipment related expenses offset by an increase in unallocated personnel costs. Unallocated personnel and other expenses for the year endedDecember 31, 2018 increased$3.5 million compared to the year endedDecember 31, 2017 . The increase in unallocated personnel and other expenses was primarily due to growth in our internal development functions and the associated third-party costs to support tazemetostat and the anticipated submission of our first NDA in the second quarter of 2019.
We expect research and development expenses will increase in 2020, as we increase our clinical trial activity for tazemetostat and utilize our drug discovery platform to progress preclinical efforts and pursue additional development candidates to expand our pipeline.
General and Administrative
General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, finance, intellectual property, business development and support functions. Other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses, travel expenses and professional fees for auditing, tax and legal services, including intellectual property and general legal services.
The following is a comparison of general and administrative expenses for the
years ended
Year Ended December 31,
2019 2018 Change %
(In millions)
General and administrative
55.2 %
Year Ended December 31,
2018 2017 Change %
(In millions)
General and administrative
18.3 % For the year endedDecember 31, 2019 , our general and administrative expenses increased$24.3 million compared to the year endedDecember 31, 2018 , primarily due to increased pre-commercialization activities, including the build out of our medical affairs and commercial organizations, and increased personnel related expenses. For the year endedDecember 31, 2018 , our general and administrative expenses increased$6.8 million compared to the year endedDecember 31, 2017 , primarily due to an increase in medical affairs and commercial costs as a result of organizational development in preparation for commercialization of tazemetostat.
We expect that general and administrative expenses will increase in 2020, as we continue to increase our commercial activities for tazemetostat.
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The following is a comparison of other income, net for the years ended
Year Ended December 31,
2019 2018 Change %
(In millions)
Other income, net
Interest income $ 7.4 $ 4.6 $ 2.8 60.9 %
Interest expense (0.3 ) - (0.3 ) 100
Other (expense) income, net - - - 0.0
Non-cash interest expense related to
sale of future royalties (0.2 ) - (0.2 ) 100
Other income, net $ 6.9 $ 4.6 $ 2.3 50.2 %
Year Ended December 31,
2018 2017 Change %
(In millions)
Other income, net
Interest income $ 4.6 $ 2.2 $ 2.4 109.1 %
Interest expense - - - 0.0
Other income, net - - - 0.0
Other income, net $ 4.6 $ 2.2 $ 2.4 109.1 %
Other income, net consists of interest income earned on our cash equivalents and
marketable securities, net of imputed interest expense paid under our capital
lease obligation. Other income is mainly comprised of interest income, which
increased $2.8 million for the year ended December 31, 2019 compared to the year
ended December 31, 2018 , primarily due to active management of our investment
portfolio, an increase in investment yields, and an increased cash balance as a
result of the public offering that we conducted in March 2019 , the RPI Purchase
Agreement and the Loan Agreement. The increase in interest income was offset by
non-cash interest expense of $0.2 million related to the sale of future
royalties and interest expense of $0.3 million incurred under our long-term debt
agreement. Interest income increased $2.4 million for the year ended
December 31, 2018 compared to the year ended December 31, 2017 , primarily due to
active management of our investment portfolio, an increase in investment yields,
and an increased cash balance as a result of the public offering that we
conducted in October 2018 .
Income Tax Benefit
We evaluated the expected recoverability of our net deferred tax assets as ofDecember 31, 2019 and 2018, and determined that, with the exception of the deferred tax asset related to alternative minimum tax, or AMT, credits, there was insufficient positive evidence to support the recoverability of these net deferred tax assets. The AMT credit becomes refundable no later than 2022 under the Tax Cuts and Jobs Act, and as such, the related deferred tax asset will be able to be realized. The corresponding valuation allowance of$368,000 was reversed as ofDecember 31, 2017 and recognized as a tax benefit. As ofDecember 31, 2018 ,$184,000 of the deferred tax asset was reclassified to an income tax receivable. Fifty percent of the remaining AMT credit is refundable with the filing of the 2019 tax return. As such, as ofDecember 31, 2019 ,$92,000 of the deferred tax asset was reclassified to an income tax receivable. There was no tax benefit or provision as a result of the asset reclassification on the balance sheet.
Liquidity and Capital Resources
ThroughDecember 31, 2019 , we have raised an aggregate of$1,280.7 million to fund our operations, of which$242.1 million was non-equity funding through our collaboration agreements,$123.1 million was from funding received through agreements withRoyalty Pharma andPharmakon Advisors consisting of$100.0 million in consideration received and$25.0 million for the first tranche of borrowings less debt issuance costs of$1.7 million ,$839.5 million was from the sale of common stock and series A Convertible Preferred Stock in our public offerings and$76.0 million was from the sale of redeemable convertible preferred stock in private financings prior to our initial public offering inMay 2013 . As ofDecember 31, 2019 , we had$381.1 million in cash, cash equivalents and marketable securities. 86 -------------------------------------------------------------------------------- InNovember 2019 , we raised approximately$123.1 million from the sale to RPI of 6,666,667 shares of our common stock, the Warrant and the Japan Royalty for, as well as from proceeds of the Tranche A Loan borrowings under the Loan Agreement. OnFebruary 11, 2020 , we sold 2,500,000 shares of common stock to RPI for an aggregate of$50.0 million in proceeds at a sale price of$20.00 per share of common stock pursuant to the Put Option. InMarch 2019 , we raised approximately$122.7 million in net proceeds (after deducting underwriting discounts and commissions and estimated offering expenses, but excluding any expenses and other costs reimbursed by the underwriters) from the sale of 11,500,000 shares of our common stock in a public offering at a price of$11.50 per share. We also raised approximately$37.4 million in net proceeds (after deducting underwriting discounts and commissions and estimated offering expenses, but excluding any expenses and other costs reimbursed by the underwriters) from the sale of 350,000 shares of series A convertible preferred stock in a public offering at a price of$115 per share. The series A convertible preferred stock is convertible into 3,500,000 shares of our common stock. InOctober 2018 , we raised approximately$81.6 million in net proceeds (after deducting underwriting discounts and commissions and estimated offering expenses, but excluding any expenses and other costs reimbursed by the underwriters) from the sale of 9,583,334 shares of our common stock in a public offering at a price of$9.00 per share. InSeptember 2017 , we raised$151.3 million , net of underwriting discounts and commissions, but before direct and incremental costs from the sale of 10,557,000 shares of our common stock in a public offering at a price to the public of$15.25 per share. In addition to our existing cash, cash equivalents and marketable securities, we may receive research and development co-funding and are eligible to earn a significant amount of option exercise and milestone payments under our collaboration agreements. Our ability to earn these payments and the timing of earning these payments is dependent upon the outcome of our research and development activities and is uncertain at this time.
Funding Requirements
Our primary uses of capital are, clinical trial costs, third-party research and development services, expenses related to preparation for commercialization, compensation and related expenses, laboratory and related supplies, our potential future milestone payment obligations to Eisai and Roche Molecular under the amended Eisai collaboration agreement and Roche Molecular companion diagnostic agreement, legal and other regulatory expenses and general overhead costs. Because our product candidates are in various stages of clinical and preclinical development and the outcome of these efforts is uncertain, we cannot estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates or whether, or when, we may achieve profitability. Until such time, if ever, as we can generate substantial product revenues, we expect to finance our cash needs through a combination of equity or debt financings and collaboration arrangements. Except for any obligations of our collaborators to make license, milestone or royalty payments under our agreements with them, and amounts available to us under the Loan Agreement withBioPharma Credit Investments V (Master) LP and BioPharma Credit PLC, which are subject to certain conditions, we do not have any committed external sources of liquidity. To the extent that we raise additional capital through the future sale of equity or debt, the ownership interest of our stockholders may be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our existing common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through collaboration arrangements in the future, we may have to relinquish valuable rights to our technologies, future revenue streams or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise any additional funds that may be needed through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves. 87
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Outlook
Based on our current operating plan, we expect that our existing cash, cash equivalents and marketable securities will be sufficient to fund our planned operating expenses and capital expenditure requirements into 2022, without giving effect to any potential option exercise fees or milestone payments we may receive under our collaboration agreements. We have based this estimate on assumptions that may prove to be wrong, particularly as the process of testing product candidates in clinical trials is costly and the timing of progress in these trials is uncertain. As a result, we could use our capital resources sooner than we expect.
Cash Flows
The following is a summary of cash flows for the years endedDecember 31, 2019 , 2018 and 2017: Year Ended December 31, 2019 2018 Change % (In millions)
Net cash used in operating activities
$ (25.6 ) 21.0 % Net cash (used in) provided by investing activities (85.3 ) (102.6 ) 17.3 -16.8 Net cash provided by financing activities 286.3 84.2 202.1 240.0 Year Ended December 31, 2018 2017 Change % (In millions)
Net cash used in operating activities
$ (1.2 ) 1.0 % Net cash provided by (used in) investing activities (102.6 ) 113.3 (215.9 ) 190.6 Net cash provided by financing activities 84.2 155.9 (71.7 ) 46.0
Net cash used in operating activities was$147.2 million during the year endedDecember 31, 2019 compared to$121.6 million during the year endedDecember 31, 2018 . The increase in net cash used in operating activities primarily relates to the increase in net loss in the period compared to 2018, and a net increase in non-cash stock-based compensation, which was partially offset by changes in working capital and a decrease in net depreciation and amortization. Net cash used in operating activities was$121.6 million during the year endedDecember 31, 2018 compared to$120.4 million during the year endedDecember 31, 2017 . The increase in net cash used in operating activities primarily relates to the decrease in net loss in the period compared to 2017, and a net increase in non-cash stock-based compensation, which was partially offset by a decrease in net depreciation and amortization and changes in working capital. The most significant items affecting working capital in the year endedDecember 31, 2018 includes accounts receivable related to the milestone revenue recognized under the GSK agreement and current deferred revenue associated with the BI Agreement.
Net cash used in investing activities during the year endedDecember 31, 2019 reflects$505.0 million of purchases of available for sale securities and$0.6 million of purchases of property and equipment, offset by maturities/sales of available for sale securities of$420.3 million . Net cash used in investing activities during the year endedDecember 31, 2018 reflects$298.7 million of purchases of available-for-sale securities and$0.3 million of purchases of property and equipment, offset by maturities of available-for-sale securities of$196.4 million . Net cash provided by investing activities during the year endedDecember 31, 2017 reflects$126.4 million of purchases of available-for-sale securities and$1.0 million of purchases of property and equipment, offset by maturities of available-for-sale securities of$240.7 million . 88 --------------------------------------------------------------------------------
Net Cash Provided by Financing Activities
Net cash provided by financing activities of$286.3 million during the year endedDecember 31, 2019 primarily reflects net cash received during the period of$123.1 million in the aggregate received through the RPI Purchase Agreement with RPI and the Loan Agreement withBioPharma Credit Investments V (Master) LP and BioPharma Credit PLC, net cash received from the sale of common stock of$123.0 million and net cash received from the sale of convertible preferred stock of$37.4 million , as well as cash received from stock option exercises. Net cash provided by financing activities of$84.2 million during the year endedDecember 31, 2018 primarily reflects net cash received from the sale of common stock in our public offerings in the fourth quarter of 2018 of$81.7 million , cash received from stock option exercises of$1.9 million , and the purchases of shares under our employee stock purchase plan of$0.7 million , partially offset by the payments under our capital lease obligation of$0.1 million . Net cash provided by financing activities of$155.9 million during the year endedDecember 31, 2017 primarily reflects net cash received from the sale of common stock in public offerings in the first quarter and third quarter of 2017 of$152.5 million , cash received from stock option exercises of$3.3 million , and the purchases of shares under our employee stock purchase plan of$0.7 million , partially offset by the payments under our capital lease obligation of$0.6 million .
Contractual Obligations and Contingent Liabilities
The following summarizes our significant contractual obligations as ofDecember 31, 2019 : Less than 1 More than 5 Contractual Obligations Total Year 1 to 3 Years 3 to 5 Years Years (In thousands) Lease obligations$ 29,718 $ 4,512 $ 15,510 $ 9,172 $ 524 Long-term debt obligations 25,000 - 12,500 12,500 - Total obligations$ 54,718 $ 4,512 $ 28,010 $ 21,672 $ 524 In addition to commitments under leasing arrangements described in the table above and in Note 8, Leases to the financial statements in Item 15 of this Annual Report on Form 10-K, we have committed to fund the remaining$4.4 million of development costs payable to Roche Molecular upon certain development and regulatory milestones, under our amended companion diagnostic agreement with Roche Molecular. We expect these remaining development costs to be incurred and paid through 2020. In addition, the contractual obligations table does not include potential future milestones or royalties that we may be required to make under license and collaboration agreements, including potential future milestones or royalties payable to Eisai under the amended collaboration and license agreement, due to the uncertainty of events requiring payment under these agreements. Under the amended collaboration and license agreement with Eisai, we agreed to pay up to$50.0 million in regulatory milestone payments, including a$25.0 million milestone payment upon regulatory approval of the first NDA or MAA, and a$25.0 million milestone payment upon regulatory approval of the NDA or MAA for the second indication, and royalties at a percentage in the mid-teens on worldwide net sales of any EZH2 product, excluding net sales inJapan . InFebruary 2020 , we paid the first$25.0 million milestone payment upon regulatory approval of tazemetostat for epithelioid sarcoma. We enter into contracts in the normal course of business with CROs for clinical and preclinical research studies, external manufacturers for product for use in our clinical trials, and other research supplies and other services as part of our operations. These contracts generally provide for termination on notice, and therefore are cancelable contracts and not included in the table of contractual obligations and commitments. 89
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Critical Accounting Policies and Use of Estimates
Our management's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America . The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the balance sheets and the reported amounts of collaboration revenue and expenses during the reporting periods. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances at the time such estimates are made. Actual results and outcomes may differ materially from our estimates, judgments and assumptions. We periodically review our estimates in light of changes in circumstances, facts and experience. The effects of material revisions in estimates are reflected in the consolidated financial statements prospectively from the date of the change in estimate. We define our critical accounting policies as those accounting principles generally accepted inthe United States of America that require us to make subjective estimates and judgments about matters that are uncertain and are likely to have a material impact on our financial condition and results of operations as well as the specific manner in which we apply those principles. We believe the critical accounting policies used in the preparation of our financial statements which require significant estimates and judgments are as follows: Revenue Recognition EffectiveJanuary 1, 2018 , we adopted Accounting Standards Codification, or ASC, Topic 606, Revenue from Contracts with Customers, or ASC 606, using the modified retrospective transition method. Under this method, results for reporting periods beginning afterJanuary 1, 2018 are presented pursuant to ASC 606, while prior period amounts are not adjusted and continue to be reported in accordance with ASC 605. This standard applies to all contracts with customers, except for contracts that are within the scope of other standards, such as leases, insurance, collaboration arrangements and financial instruments. Under ASC 606, an entity recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that an entity determines are within the scope of ASC 606, the entity performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We only apply the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once the contract is determined to be within the scope of ASC 606, we assess the goods or services promised within each contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. We have entered into collaboration and license agreements, which are within the scope of ASC 606, to discover, develop, manufacture and commercialize product candidates. The terms of these agreements typically contain multiple promises or obligations, which may include: (i) licenses, or options to obtain licenses, to compounds directed to specific HMT targets (referred to as "exclusive licenses") and (ii) research and development activities to be performed on behalf of the collaboration partner related to the licensed HMT targets. Payments to us under these agreements may include non-refundable license fees, customer option exercise fees, payments for research activities, reimbursement of certain costs, payments based upon the achievement of certain milestones and royalties on any resulting net product sales. We first evaluate license and/or collaboration arrangements to determine whether the arrangement (or part of the arrangement) represents a collaborative arrangement pursuant to ASC Topic 808, Collaborative Arrangements, based on the risks and rewards and activities of the parties pursuant to the contractual arrangement. We account for collaborative arrangements (or elements within the contract that are deemed part of a collaborative arrangement), which represent a collaborative relationship and not a customer relationship, outside the scope of ASC 606. Our collaborations primarily represent revenue arrangements. For the arrangements or arrangement components that are subject to revenue accounting guidance, in determining the appropriate amount of 90 -------------------------------------------------------------------------------- revenue to be recognized as it fulfills its obligations under each of its agreements, we perform the following steps: (i) identification of the promised goods or services in the contract; (ii) determination of whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract; (iii) measurement of the transaction price, including the constraint on variable consideration; (iv) allocation of the transaction price to the performance obligations; and (v) recognition of revenue when (or as) we satisfy each performance obligation. As part of the accounting for these arrangements, we must use significant judgment to determine: a) the number of performance obligations based on the determination under step (ii) above and whether those performance obligations are distinct from other performance obligations in the contract; b) the transaction price under step (iii) above; and c) the stand-alone selling price for each performance obligation identified in the contract for the allocation of transaction price in step (iv) above. We use judgment to determine whether milestones or other variable consideration, except for royalties, should be included in the transaction price as described further below. The transaction price is allocated to each performance obligation on a relative stand-alone selling price basis, for which we recognize revenue as or when the performance obligations under the contract are satisfied. In determining the stand-alone selling price of a license to our proprietary technology or a material right provided by a customer option, we consider market conditions as well as entity-specific factors, including those factors contemplated in negotiating the agreements as well as internally developed estimates that include assumptions related to the market opportunity, estimated development costs, probability of success and the time needed to commercialize a product candidate pursuant to the license. In validating its estimated stand-alone selling price, we evaluate whether changes in the key assumptions used to determine its estimated stand-alone selling price will have a significant effect on the allocation of arrangement consideration between performance obligations. Amounts received prior to revenue recognition are recorded as deferred revenue. Amounts expected to be recognized as revenue within the 12 months following the balance sheet date are classified as current portion of deferred revenue in the accompanying consolidated balance sheets. Amounts not expected to be recognized as revenue within the 12 months following the balance sheet date are classified as deferred revenue, net of current portion. Amounts recognized as revenue, but not yet received or invoiced are generally recognized as contract assets. Exclusive Licenses - If the license to our intellectual property is determined to be distinct from the other promises or performance obligations identified in the arrangement, which generally include research and development services, we recognize revenue from non-refundable, upfront fees allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the license. In assessing whether a license is distinct from the other promises, we consider relevant facts and circumstances of each arrangement, including the research and development capabilities of the collaboration partner and the availability of the associated expertise in the general marketplace. In addition, we consider whether the collaboration partner can benefit from the license for its intended purpose without the receipt of the remaining promise, whether the value of the license is dependent on the unsatisfied promise, whether there are other vendors that could provide the remaining promise, and whether it is separately identifiable from the remaining promise. For licenses that are combined with other promises, we utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. We evaluate the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. The measure of progress, and thereby periods over which revenue should be recognized, are subject to estimates by management and may change over the course of the research and development and licensing agreement. Research and Development Services - The promises under our collaboration and license agreements generally include research and development services to be performed by the Company on behalf of the collaboration partner. For performance obligations that include research and development services, we generally recognize revenue allocated to such performance obligations based on an appropriate measure of progress. The Company utilizes judgment to determine the appropriate method of measuring progress for purposes of recognizing revenue, which is generally an input measure such as costs incurred. We evaluate the measure of progress each reporting period as described under Exclusive Licenses above. Reimbursements from the partner that are the result of a collaborative relationship with the partner, instead of a customer relationship, such as co-development activities, are recorded as a reduction to research and development expense. 91
-------------------------------------------------------------------------------- Customer Options - Our arrangements may provide a collaborator with the right to select a target for licensing either at the inception of the arrangement or within an initial pre-defined selection period, which may, in certain cases, include the right of the collaborator to extend the selection period. Under these agreements, fees may be due to us (i) at the inception of the arrangement as an upfront fee or payment, (ii) upon the exercise of an option to acquire a license or (iii) upon extending the selection period as an extension fee or payment. If an arrangement is determined to contain customer options that allow the customer to acquire additional goods or services, the goods and services underlying the customer options are not considered to be performance obligations at the outset of the arrangement, as they are contingent upon option exercise. We evaluate the customer options for material rights, or options to acquire additional goods or services for free or at a discount. If the customer options are determined to represent a material right, the material right is recognized as a separate performance obligation at the inception of the arrangement. We allocate the transaction price to material rights based on the relative stand-alone selling price, which is determined based on the identified discount and the probability that the customer will exercise the option. Amounts allocated to a material right are not recognized as revenue until, at the earliest, the option is exercised or expires. Milestone Payments - At the inception of each arrangement that includes development milestone payments, we evaluate whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within our control or control of the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received. We evaluate factors such as the scientific, clinical, regulatory, commercial, and other risks that must be overcome to achieve the particular milestone in making this assessment. There is considerable judgment involved in determining whether it is probable that a significant revenue reversal would not occur. At the end of each subsequent reporting period, we reevaluate the probability of achievement of all milestones subject to constraint and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment. If a milestone or other variable consideration relates specifically to our efforts to satisfy a single performance obligation or to a specific outcome from satisfying the performance obligation, we generally allocate the milestone amount entirely to that performance obligation once it is probable that a significant revenue reversal would not occur. Royalties - For arrangements that include sales-based royalties, including milestone payments based on a level of sales, and the license is deemed to be the predominant item to which the royalties relate, we 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). To date, we have not recognized any royalty revenue resulting from any of its licensing arrangements.
For a complete discussion of accounting for collaboration revenues, see Note 10, Collaborations, in the accompanying Notes to Consolidated Financial Statements included in Item 15. of Part IV of this Annual Report on Form 10-K.
As part of the process of preparing our financial statements, we are required to estimate our accrued expenses as of each balance sheet date. This process involves reviewing open contracts and purchase orders, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost. The majority of our service providers invoice us monthly in arrears for services performed or when contractual milestones are met. We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time. We periodically confirm the accuracy of our estimates with the service providers and make adjustments if necessary. Examples of estimated accrued research and development expenses include fees paid to: • contract research organizations in connection with clinical trials; • investigative sites in connection with clinical trials; • vendors in connection with non-clinical development activities; and
• vendors related to product manufacturing, development and distribution
of clinical supplies.
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-------------------------------------------------------------------------------- We generally accrue expenses related to research and development activities based on the services received and efforts expended pursuant to contracts with multiple contract research organizations that conduct and manage clinical trials on our behalf as well as other vendors that provide research and development services. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the expense. Payments under some of these contracts depend on factors such as the successful enrollment of subjects and the completion of clinical trial milestones. In accruing service fees, we estimate the time period over which services will be performed and the level of effort to be expended in each period. If the actual timing of the performance of services or the level of effort varies from our estimate, we would adjust the accrual or prepaid accordingly. Although we do not expect our estimates to be materially different from amounts actually incurred, if our estimates of the status and timing of services performed differ from the actual status and timing of services performed we may report amounts that are too high or too low in any particular period. To date, there have been no material differences from our estimates to the amount actually incurred.
Liability Related to Sale of Future Royalties
We treat the liability related to sale of future royalties as a debt financing, as we have significant continuing involvement in the generation of the cash flows, to be amortized to interest expense using the effective interest rate method over the life of the related royalty stream. The liability related to sale of future royalties and the related interest expense are based on our current estimates of future royalties expected to be paid over the life of the arrangement. We will periodically assess the expected royalty payments using a combination of internal projections and forecasts from external sources. To the extent our future estimates of royalty payments are greater or less than previous estimates or the estimated timing of such payments is materially different than its previous estimates, we will prospectively recognize related non-cash interest expense.
Going Concern
We continually evaluate our ability to continue as a going concern within one
year of the date of issuance of financial statements in both our Quarterly
Reports on Form 10-Q and Annual Report on Form 10-K. Our evaluation entails
analyzing forward looking budgets and forecasts for expectations of our cash
needs, and comparing those needs to our current cash, cash equivalent and
marketable security balances.
Based on our current operating plan, we expect that our existing cash, cash
equivalents and marketable securities will be sufficient to fund our planned
operating expenses and capital expenditure requirements into 2022, without
giving effect to any potential option exercise fees or milestone payments we may
receive under our collaboration agreements.
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--------------------------------------------------------------------------------Recent Accounting Pronouncements
For detailed information regarding recently issued accounting pronouncements and the expected impact on our consolidated financial statements, see Note 2, Summary of Significant Accounting Policies-Recent Accounting Pronouncements, in the accompanying Notes to Consolidated Financial Statements included in Item 15. of Part IV of this Annual Report on Form 10-K.
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