You should read the following discussion and analysis of our financial condition, results of operations, and cash flows together with the audited consolidated financial statements and the related notes thereto included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the "Cautionary Note Regarding Forward-Looking Statements" and "Item 1A Risk Factors" for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. Our fiscal year ends onMarch 31 . Prior toDecember 18, 2019 , we were known asHealth Sciences Acquisitions Corporation . OnDecember 18, 2019 , we completed the Business Combination withImmunovant Sciences Ltd. , a private company. For accounting purposes,Health Sciences Acquisitions Corporation was deemed to be the acquired entity. Overview We are a clinical-stage biopharmaceutical company focused on enabling normal lives for people with autoimmune diseases. We are developing a novel, fully human monoclonal antibody, IMVT-1401 (formerly referred to as RVT-1401), that selectively binds to and inhibits the neonatal fragment crystallizable receptor ("FcRn"). IMVT-1401 is the product of a multi-step, multi-year research program conducted by HanAll Biopharma Co., Ltd., to design a highly potent anti-FcRn antibody optimized for subcutaneous delivery. Our product candidate has been dosed in small volumes (e.g., 2 mL) and with a 27-gauge needle, while still generating therapeutically relevant pharmacodynamic activity, important attributes that we believe will drive patient preference and market adoption. In nonclinical studies and in clinical trials conducted to date, IMVT-1401 has been observed to reduce immunoglobulin G ("IgG") antibody levels. High levels of pathogenic IgG antibodies drive a variety of autoimmune diseases and, as a result, we believe IMVT-1401 has the potential for broad application in these disease areas. We intend to develop IMVT-1401 in autoimmune diseases for which there is robust evidence that pathogenic IgG antibodies drive disease manifestation and for which reduction of IgG antibodies should lead to clinical benefit. We are developing IMVT-1401 as a fixed-dose, self-administered subcutaneous injection on a convenient weekly, or less frequent, dosing schedule as discussed below. As a result of our rational design, we believe that IMVT-1401, if developed and approved for commercial sale, would be differentiated from currently available, more invasive treatments for advanced IgG-mediated autoimmune diseases, (e.g., MG, WAIHA and TED, Idiopathic Thrombocytopenic Purpura, Pemphigus Vulgaris, Chronic Inflammatory Demyelinating Polyneuropathy, Bullous Pemphigoid, Neuromyelitis Optica, Pemphigus Foliaceus, Guillain-Barré Syndrome and PLA2R+ Membranous Nephropathy). In 2020, these diseases had an aggregate prevalence of approximately 278,000 patients inthe United States and 480,000 patients inEurope . To the extent we choose to develop IMVT-1401 for certain of these rare diseases, we plan to seek orphan drug designation inthe United States andEurope , where applicable. Such designations would primarily provide financial and exclusivity incentives intended to make the development of orphan drugs financially viable. However, we have not yet obtained such designation for any of our target indications, and there is no certainty that we will obtain such designation, or maintain the benefits associated with such designation if we do obtain it. We are developing IMVT-1401 as a fixed-dose subcutaneous injection, and have focused our initial development efforts on the treatment of MG, WAIHA and TED. We are also pursuing a series of other indications. MG is an autoimmune disease associated with muscle weakness. InAugust 2020 , we reported top-line results from an interim analysis of 15 participants in our ASCEND MG trial, a multi-center, randomized, placebo-controlled Phase 2a clinical trial designed to evaluate the safety, tolerability, pharmacodynamics and efficacy of IMVT-1401 in patients with moderate-to-severe MG. After the interim analysis, two additional participants enrolled and were randomized. The trial is now completed. See "Current Status of our Clinical Trials" below for further discussion. WAIHA is a rare hematologic disease in which autoantibodies mediate hemolysis, or the destruction of red blood cells. InAugust 2020 , we initiated dosing for ASCEND WAIHA, our Phase 2, open-label, sequential, two cohort clinical trial in patients with WAIHA. InFebruary 2021 , we voluntarily paused dosing in our clinical trials for IMVT-1401. Because the ASCEND WAIHA trial is an open label trial, the pause did not necessitate study termination but rather a suspension. See "Recent Developments in Our Clinical Programs" below for further discussion. 111 -------------------------------------------------------------------------------- Table of Contents TED is an autoimmune inflammatory disorder that affects the muscles and other tissues around the eyes, which can be sight-threatening. InMarch 2020 , we announced initial results from our ASCEND GO-1 trial, a Phase 2a open-label single-arm clinical trial inCanada in seven patients with TED. This trial is now completed. InOctober 2019 , we initiated dosing in our ASCEND GO-2 trial, a randomized, masked, placebo-controlled Phase 2b clinical trial in patients with moderate-to-severe active TED with confirmed autoantibodies to thyroid-stimulating hormone receptor ("TSHR"). InFebruary 2021 , we voluntarily paused dosing in our clinical trials for IMVT-1401. Because the pause led to unblinding ASCEND GO-2, this trial was terminated after the last patient completed the withdrawal visit and the follow-up visit. See "Recent Developments in Our Clinical Programs" below for further discussion. We were incorporated inJuly 2018 and we have been primarily engaged in preparing for and conducting clinical trials for our product candidate, IMVT-1401. To date, we have not generated any revenue and have generated significant operating losses since our inception. As ofMarch 31, 2021 and 2020, we had an accumulated deficit of$198.7 million and$91.2 million , respectively. For the years endedMarch 31, 2021 and 2020, we recorded net losses of$107.4 million and$66.4 million , respectively. Recent Developments in Our Clinical Programs InFebruary 2021 , we voluntarily paused dosing in our clinical trials for IMVT-1401 due to elevated total cholesterol and low-density lipoprotein ("LDL") levels observed in some trial subjects treated with IMVT-1401. We have informed regulatory authorities and trial subjects and investigators of this voluntary pause of dosing in our studies that were ongoing at that time, ASCEND GO-2, our Phase 2b trial in Thyroid Eye Disease and ASCEND WAIHA, our Phase 2 trial in Warm Autoimmune Hemolytic Anemia. In order to better characterize the observed lipid findings, we conducted fromFebruary 2021 throughMay 2021 a program-wide data review (including both clinical and nonclinical data) with input from external scientific and medical experts. In our ASCEND GO-2 trial, lipid parameters were assessed at baseline, at week 12, and at week 20 following eight weeks off drug. Based on preliminary, unblinded data, median LDL cholesterol at week 12 was increased by approximately 12 mg/dL in the 255 mg dose group (corresponding to an increase from baseline of approximately 15%), by approximately 33 mg/dL in the 340 mg dose group (corresponding to an increase from baseline of approximately 37%), by approximately 62 mg/dL in the 680 mg dose group (corresponding to an increase from baseline of approximately 52%) and did not increase in the control group. The data analysis indicates a dose-dependent increase in lipids. Average high-density lipoprotein ("HDL") and triglyceride levels also increased but to a much lesser degree. We also observed correlated decreases in albumin levels and the rate and extent of albumin reductions were dose-dependent. Subjects receiving the 255 mg weekly dose ("QW") experienced the smallest reductions in albumin through week 12, with a median reduction of about 16% from baseline, while subjects receiving the 340 mg or 680 mg QW dose experienced median reductions of albumin of 26% or 40%, respectively. At week 20, both lipids and albumin returned to baseline. In our open label ASCEND WAIHA trial, only two subjects completed 12 weeks of dosing prior to the program-wide pause in dosing, with three additional subjects partially completing the dosing period. Pre-specified and post-hoc lipid test results from these five subjects were analyzed along with post-hoc lipid test results performed on frozen samples from ASCEND MG subjects (where available) and post-hoc lipid test results from our Phase 1 Injection Site study. LDL elevations observed in the ASCEND WAIHA and ASCEND MG subject populations and in healthy subjects in the Phase 1 Injection Site Study also appeared to be dose-dependent and were generally consistent in magnitude with the elevations observed in ASCEND GO-2 subjects.
No major adverse cardiovascular events have been reported to date in IMVT-1401 clinical trials.
Integrated Safety Assessment and Regulatory Interactions It is our intent to resume development across multiple indications for IMVT-1401. We are in the process of drafting multiple study protocols and updating our program-wide safety strategy for discussions with regulatory agencies. The elements of our development program will include extensive pharmacokinetic ("PK") and pharmacodynamic ("PD") modeling to select dosing regimens for IMVT-1401 which optimize reductions in total IgG levels while minimizing the impact on albumin and LDL levels, particularly for clinical studies containing long-term treatment extensions. These protocols will likely include protocol-directed guidelines for the management of any observed lipid abnormalities. While increases in LDL over an 8 to 12 week treatment duration would not be expected to pose a safety concern for patients, the risk-benefit profile of long-term administration of IMVT-1401 will need to incorporate any unfavorable effects on lipid profiles. Discussions with regulatory agencies, including the FDA, are expected to commence during the second half of the calendar year 2021. 112 -------------------------------------------------------------------------------- Table of Contents Current Status of Our Clinical Trials Before the voluntary pause of dosing, we had a favorable end of Phase 2 meeting with the FDA on the design of our Phase 3 registrational program in MG and we were planning on advancing our clinical trials for this indication. Based on our integrated safety analysis, we plan to meet with the FDA to propose further development to evaluate additional dosing levels and regimens as well as to include additional safety monitoring and considerations such as lipid and albumin monitoring and incorporating an independent safety monitoring committee. Contingent upon FDA feedback, we plan to initiate a pivotal study in MG late in the calendar year 2021 or early part of the calendar year 2022. Our ASCEND WAIHA trial is an open label trial and we are planning on advancing our clinical trials for this indication. During the fall of 2021, we plan to commence discussions with the FDA on re-initiating this study, incorporating additional safety considerations and risk management as well as additional dosing regimens. We anticipate re-initiating this study based on a favorable outcome from these meetings late in the calendar year 2021 or early part of the calendar year 2022. Our voluntary pause in dosing led to unblinding of the ASCEND GO-2 trial and this trial was terminated after the last patient completed the withdrawal visit and the follow-up visit. Treatment with IMVT-1401 reduced both IgG and disease specific pathogenic IgG over the 12-week treatment period. However, the efficacy results, based on approximately half the anticipated number of subjectswho had reached the week 13 primary efficacy analysis at the time of the termination of the trial, were inconclusive. The primary endpoint of the proportion of proptosis responders was not met, and although not tested statistically, post hoc evaluation of other endpoints measured (CAS and diplopia scores) indicated the desired magnitude of treatment effect likely would not have been achieved. However, levels of IgG were reduced across IMVT-1401 dosing groups, and analysis of the receptor occupancy data suggest binding of IMVT-1401 to the Fc receptor. Additional exploratory work on other disease biomarkers is under evaluation. Further discussions with external experts are ongoing to determine whether a specific population can be identified to optimize the clinical performance of IMVT-1401. Based on these analyses, we are likely to design another Phase 2 trial in TED or another thyroid-related disease as our next study in this therapeutic area and initiate discussions with regulatory authorities before the end of the calendar year 2021. Pharmacokinetics (PK) and Pharmacodynamics (PD) The PK and PD (including serum concentrations of total IgG, albumin, and lipids) of IMVT-1401 were evaluated in healthy subjects in our Phase 1 clinical trial and Phase 1 Injection Site Study, and in patients with MG, TED and WAIHA in our ASCEND MG, ASCEND GO-1, ASCEND GO-2 and ASCEND WAIHA trials. Over the course of development, we have made significant progress in understanding the PK profiles, PD responses, and PK/PD relationships for IMVT-1401. In addition, we have established preliminary population PK and population PK/PD models using pooled data from all clinical studies to better understand and predict the PK and PD properties associated with various treatment regimens across different populations. To date, single doses of IMVT-1401 ranged from 100 mg to 1530 mg IV and 1.5 mg/kg to 765 mg and were administered by subcutaneous injections ("SC") to healthy subjects. Multiple doses of 255 mg, 340 mg, and 680 mg SC QW have been studied in healthy subjects (up to 4 weeks of dosing) and patients with TED, MG, or WAIHA (up to 12 weeks of dosing). Based on preliminary data from our ASCEND GO-2 trial in TED, drug concentrations achieved after 680 mg SC QW resided predominantly in the linear elimination phase of the PK profile and were estimated to maintain target saturation during the dosing intervals in most subjects. The mean maximal reduction of total IgG achieved with maximal target engagement was approximately 80% and was achieved after 7 weeks of dosing. Drug concentrations achieved with 255 mg or 340 mg SC QW did not maintain target saturation throughout the dosing intervals in the majority of subjects; total IgG levels continued to decrease and were reduced by median Emax of approximately 62% and 69%, respectively, at the end of the 12-week dosing period. The shoulder region of the dose-response curve for reduction in total IgG was covered and observed. Within the dose range studied, the rate and extent of albumin reductions and lipid elevations were dose-dependent across different populations. Over a 12-week dosing period, median Emax of albumin reductions were approximately 16%, 26%, 40% and median increases in LDL were approximately 15%, 37% and 52% for the 255 mg, 340 mg and 680 mg SC QW doses, respectively. The lipid elevations were highly correlated with albumin reductions. Unlike the PK/PD relationship for total IgG, the shoulder region of the dose-response curves for reduction in albumin and increases in LDL were not clearly observed. Total IgG, albumin, and lipids levels returned to baseline within eight weeks after the last dose of a 12-week treatment. Comprehensive understanding of the PK and PD characteristics of IMVT-1401 has enabled creation of robust mathematical models to support the selection of future dosing regimens. The discordance between the PK/PD response relationship for IgG and that of albumin or LDL suggests options for dosing regimens that provide potentially effective reductions in total IgG (and pathologic autoantibodies) while minimizing effects on albumin and LDL levels. Optimized dosing regimens, if shown to be effective, could improve the risk/benefit profile of IMVT-1401 while the ease of administration of our current formulation could enhance the overall patient experience. 113 -------------------------------------------------------------------------------- Table of Contents Potential New Indications We continue to evaluate potential new indications for IMVT-1401 by considering a number of factors including, but not limited to, degree of unmet need, degree of potential benefit offered by the treatment, safety-related parameters, target patient population size, likely duration of dosing and commercial potential. We have identified many attractive first-in-class indications with high unmet need and scientific rationale for anti-FcRn therapy. In our studies to date, we learned that IMVT-1401 has the potential to be more effective than we expected at providing therapeutic relief for patients across a broad range of indications. We also believe that certain indications with existing anti-FcRn programs also offer a significant opportunity to provide unique patient benefit and therefore a strong commercial opportunity. Accordingly, we plan to announce two new indications and submit INDs and our trial designs to the FDA over the next 12 months. For competitive reasons, we will likely announce these indications only after we have agreement with the FDA that we may proceed with a planned protocol. We believe that one or two of these new indications will involve a new phase 2 program whereas one of our new indications can begin with a pivotal study in 2022. COVID-19 Business Update We have been actively monitoring the impact of the COVID-19 pandemic on our employees and our business. Based on guidance issued by federal, state and local authorities, we transitioned to a remote work model for our employees inmid-March 2020 and our workforce has continued to work remotely. Our operations continue as we seek to comply with guidance from governmental authorities and adjust our activities as appropriate. Prior to our previously disclosed voluntary pause of our clinical trials for IMVT-1401 inFebruary 2021 , the COVID-19 pandemic had a variable impact on our clinical trials. Some of our clinical trial sites closed enrollment for new patients in earlyMarch 2020 due to COVID-19, whereas other sites remained partially open for new patient enrollment until our voluntary pause. These impacts have resulted in slower than projected patient enrollment of our trials. In the conduct of our business activities, we continue to take actions designed to protect the safety and well-being of our clinical trial participants and employees. For participants already enrolled in our clinical trials, we are working closely with clinical trial investigators and site staff to observe government and institutional guidelines designed to safeguard the health and safety of patients, clinical trial investigators and site staff. Our very experienced clinical development team has successfully maintained robust communication with our sites. We have also been working with our partners to ensure that backup services are in place, which has enabled some virtual visits to replace in-person visits. We have not experienced material financial impacts as a result of COVID-19 pandemic. However, the impact of COVID-19 on our future results will largely depend on future developments related to COVID-19, which are highly uncertain and cannot be predicted with confidence, such as the ultimate duration and spread of the outbreak, the continuing impact of the pandemic on our enrolling clinical sites, financial markets and the global economy, travel restrictions and social distancing inthe United States and other countries, business closures or business disruptions and the effectiveness of actions taken inthe United States and other countries to contain and treat the disease. For additional information about risks and uncertainties related to the COVID-19 pandemic that may impact our business, financial condition and results of operations, see the section titled "Risk Factors" under Part I, Item 1A in this Annual Report on Form 10-K. Our Key Agreements License Agreement with HanAll Biopharma Co., Ltd. InDecember 2017 , RSG entered into the HanAll Agreement. Under the HanAll Agreement, RSG, a wholly owned subsidiary of RSL, received (1) the non-exclusive right to manufacture and (2) the exclusive, royalty-bearing right to develop, import and use the antibody referred to as IMVT-1401 and certain back-up and next-generation antibodies, and products containing such antibodies, and to commercialize such products, inthe United States ,Canada ,Mexico , the E.U., theU.K. ,Switzerland , theMiddle East ,North Africa andLatin America , or the Licensed Territory, for all human and animal uses, during the term of the agreement. InDecember 2018 , we obtained and assumed all rights, title, interest and obligations under the HanAll Agreement from RSG, including all rights to IMVT-1401 from RSG in the Licensed Territory, pursuant to an assignment and assumption agreement between RSG and its wholly owned subsidiary, ISG, for an aggregate purchase price of$37.8 million plus Swiss value-added tax of$2.9 million . 114 -------------------------------------------------------------------------------- Table of Contents Under the HanAll Agreement, the parties may choose to collaborate on a research program directed to the research and development of next generation FcRn inhibitors in accordance with an agreed plan and budget. We are obligated to reimburse HanAll for half of such research and development expenses incurred by HanAll, up to an aggregate reimbursement amount of$20.0 million . Intellectual property created by HanAll pursuant to this research program will be included in our license; intellectual property created by us pursuant to this research program will be included in HanAll's license. Since the acquisition of IMVT-1401, we, along with RSL, have performed all the development associated with IMVT-1401 and no amounts were incurred by HanAll and reported to the Company for further research or development of the technology for the years endedMarch 31, 2021 and 2020. Pursuant to the HanAll Agreement, RSG made an upfront payment of$30.0 million to HanAll. InMay 2019 , we achieved our first development and regulatory milestone which resulted in a$10.0 million milestone payment that we subsequently paid inAugust 2019 . We will be responsible for future contingent payments and royalties, including up to an aggregate of$442.5 million upon the achievement of certain development, regulatory and sales milestone events. We are also obligated to pay HanAll tiered royalties ranging from the mid-single digits to mid-teens on net sales of licensed products, subject to standard offsets and reductions as set forth in the HanAll Agreement. These royalty obligations apply on a product-by-product and country-by-country basis and end upon the latest of: (A) the date on which the last valid claim of the licensed patents expire, (B) the date on which the data or market exclusivity expires or (C) 11 years after the first commercial sale of the licensed product, in each case, with respect to a given product in a given country. See "Business-License Agreement with HanAll Biopharma Co., Ltd." for further information. Services Agreements with RSI and RSG InAugust 2018 , we entered into Services Agreements with RSI and RSG, under which RSI and RSG agreed to provide services related to development, administrative and financial activities to us during our formative period. Under each Services Agreement, we will pay or reimburse RSI or RSG, as applicable, for any expenses they, or third parties acting on our behalf, incur. For any general and administrative and research and development activities performed by RSI or RSG employees, RSI or RSG, as applicable, will charge back the employee compensation expense plus a pre-determined markup. RSI and RSG also provided such services prior to the formalization of the Services Agreements, and such costs have been recognized by us in the period in which the services were rendered. Employee compensation expense, inclusive of base salary and fringe benefits, is determined based upon the relative percentage of time utilized on our matters. All other costs will be billed back at cost. The term of the Services Agreements will continue until terminated by us, RSI or RSG, as applicable, upon 90 days' written notice. RSL Information Sharing and Cooperation Agreement InDecember 2018 , we entered into an amended and restated information sharing and cooperation agreement, or the Cooperation Agreement, with RSL, which, among other things: (1) obligates us to deliver to RSL periodic financial statements and other information upon reasonable request and to comply with other specified financial reporting requirements; (2) requires us to supply certain material information to RSL to assist it in preparing any futureSEC filings; and (3) requires us to implement and observe certain policies and procedures related to applicable laws and regulations. We have agreed to indemnify RSL and its affiliates and their respective officers, employees and directors against all losses arising out of, due to or in connection with RSL's status as a stockholder under the Cooperation Agreement and the operations of or services provided by RSL or its affiliates or their respective officers, employees or directors to us or any of our subsidiaries, subject to certain limitations set forth in the Cooperation Agreement. No amounts have been paid or received under this agreement; however, we believe this agreement is material to our business and operations. Subject to specified exceptions, the Cooperation Agreement will terminate upon the earlier of (1) the mutual written consent of the parties or (2) the later of when RSL no longer (a) is required by generally accepted accounting principles inthe United States , orU.S. GAAP, to consolidate our results of operations and financial position, account for its investment in us under the equity method of accounting or, by any rule of theSEC , include our separate financial statements in any filings it may make with theSEC and (b) has the right to elect directors constituting a majority of our board of directors. Financial Operations Overview Revenue We have not generated any revenue and have incurred significant operating losses since inception, and we do not expect to generate any revenue from the sale of any products unless or until we obtain regulatory approval of and commercialize IMVT-1401 or any future product candidates. Our ability to generate revenue sufficient to achieve profitability will depend completely on the successful development and eventual commercialization of IMVT-1401 and any future product candidates. 115 -------------------------------------------------------------------------------- Table of Contents Research and Development Expenses We have been primarily engaged in preparing for and conducting clinical trials. Research and development expenses include program-specific costs, as well as unallocated costs. Program-specific costs include direct third-party costs, which include expenses incurred under agreements with contract research organizations and the cost of consultantswho assist with the development of the Company's product candidate on a program-specific basis, investigator grants, sponsored research, and any other third-party expenses directly attributable to the development of the product candidate. Unallocated costs include: •Costs related to contract manufacturing operations including manufacturing costs in connection with producing materials for use in conducting preclinical and clinical studies; •personnel-related expenses for research and development personnel, which includes employee-related expenses such as salaries, benefits and other staff-related costs; •stock-based compensation expenses for research and development personnel; •payments upon the achievement of certain development and regulatory milestones under the HanAll Agreement; •costs allocated to us under our services agreements with RSI and RSG (the "Services Agreements"); and •other expenses, which include the cost of consultantswho assist with our research and development, but are not allocated to a specific program. Research and development activities will continue to be central to our business model. We expect our research and development expenses to increase significantly over the next several years as we increase personnel and compensation costs, commence additional clinical trials for IMVT-1401 and prepare to seek regulatory approval for our product candidate. It is not possible to determine with certainty the duration and completion costs of any clinical trial we may conduct. The duration, costs and timing of clinical trials of IMVT-1401 and any future product candidates will depend on a variety of factors that include, but are not limited to: •the number of trials required for approval; •the per patient trial costs; •the number of patients that participate in the trials; •the number of sites included in the trials; •the countries in which the trial is conducted; •the length of time required to enroll eligible patients; •the number of doses that patients receive; •the drop-out or discontinuation rates of patients; •the potential additional safety monitoring or other studies requested by regulatory agencies; •the duration of patient follow-up; •the timing and receipt of regulatory approvals; •the potential impact of the ongoing COVID-19 pandemic; •the efficacy and safety profile of the product candidate; and •the cost of manufacturing. In addition, the probability of success for IMVT-1401 will depend on numerous factors, including our product's efficacy, safety, ease of use, competition, manufacturing capability and commercial viability. General and Administrative Expenses General and administrative expenses consist primarily of employee salaries and related benefits, costs allocated under the Services Agreements and stock-based compensation for general and administrative personnel, legal and accounting fees, consulting services and other operating costs relating to corporate matters and daily operations. 116 -------------------------------------------------------------------------------- Table of Contents We anticipate that our general and administrative expenses will continue to increase in the future to support our continued research and development activities and increased costs of operating as a public company. These increases will likely include patent-related costs, including legal and professional fees for filing, prosecution and maintenance of our product candidates, increased costs related to the hiring of additional personnel and fees to outside consultants for professional services. Additionally, we anticipate increased costs associated with being a public company, including expenses related to services associated with maintaining compliance with Nasdaq rules andSEC requirements, insurance and investor relations costs. In addition, whenever IMVT-1401 obtains regulatory approval, we expect that we would incur significant additional expenses associated with building medical affairs and commercial teams. Interest Expense Interest expense consisted of interest incurred on our convertible promissory notes that were settled through conversion upon the closing of the Business Combination. Results of Operations Comparison of the Years EndedMarch 31, 2021 and 2020 The following table sets forth our results of operations for the years endedMarch 31, 2021 and 2020 (in thousands): Years Ended March 31, Change 2021 2020 $ Operating expenses: Research and development$ 68,604 $ 47,927 $ 20,677 General and administrative 39,513 18,151 21,362 Total operating expenses 108,117 66,078 42,039 Interest expense - 625 (625) Other income, net (328) (412) 84
Loss before (benefit) provision for income taxes (107,789) (66,291) (41,498) (Benefit) provision for income taxes
(358) 97 (455) Net loss$ (107,431) $ (66,388) $ (41,043) Research and Development Expenses The following tables summarize the year-over-year changes in research and development expenses for the years endedMarch 31, 2021 and 2020 (in thousands): Years Ended March 31, Change 2021 2020 $ Program-specific costs: Neurology diseases$ 4,412 $ 3,965 $ 447 Endocrine diseases 8,705 6,426 2,279 Hematology diseases 5,037 2,576 2,461 Unallocated costs: Contract manufacturing costs 23,674 13,021 10,653 Personnel-related expenses including stock-based compensation 18,729 7,144 11,585 Development and regulatory milestone payment - 10,000 (10,000) Other 8,047 4,795 3,252 Total research and development expenses$ 68,604
Research and development expenses increased by$20.7 million , from$47.9 million for the year endedMarch 31, 2020 to$68.6 million for the year endedMarch 31, 2021 . Program-specific research and development costs increased by$5.2 million , from$13.0 million for the year endedMarch 31, 2020 to$18.2 million for the year endedMarch 31, 2021 , due to an increase in costs related to increased clinical trial activities during the year endedMarch 31, 2021 . 117
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Unallocated research and development costs increased by$15.5 million , from$34.9 million for the year endedMarch 31, 2020 to$50.4 million for the year endedMarch 31, 2021 . This increase was primarily due to higher employee costs of$11.6 million , increases in contract manufacturing costs of$10.7 million and$3.2 million of other increases related to clinical studies and clinical research, partially offset by a$10.0 million payment during the year endedMarch 31, 2020 related to the achievement of the first development and regulatory milestone under the HanAll Agreement inMay 2019 . Personnel-related expenses and stock-based compensation expense increased by$7.7 million and$3.9 million , respectively, both of which were due to increasing headcount to support our expanded clinical operations. Contract manufacturing costs increased by$10.7 million from the prior year primarily reflecting increased manufacturing of materials used in our clinical trials, as well as higher costs related to analytical development, extended characterization, and drug stability. The increase in other unallocated costs primarily reflects$2.8 million of professional and consulting fees to support our increased clinical trial activities. General and Administrative Expenses General and administrative expenses increased by$21.4 million , from$18.1 million for the year endedMarch 31, 2020 to$39.5 million for the year endedMarch 31, 2021 . This increase was primarily due to higher personnel-related costs of$4.2 million and higher stock-based compensation expense of$8.0 million , both of which were due to higher headcount. Other increases include costs of$3.0 million related to directors' and officers' insurance, higher legal and professional fees of$2.1 million , market research costs of$1.3 million , and rent of$1.1 million to support our personnel growth and operations as a public company. Interest Expense Interest expense was$0.6 million for the year endedMarch 31, 2020 and was related to the interest accrued on our convertible promissory notes issued during the year that were settled through conversion upon the closing of the Business Combination. There was no interest expense for the year endedMarch 31, 2021 . Liquidity and Capital Resources Overview We had cash of$400.1 million and$100.6 million as ofMarch 31, 2021 and 2020, respectively. For the years endedMarch 31, 2021 and 2020, we had net losses of$107.4 million and$66.4 million , respectively. InApril 2020 , we completed an underwritten public offering of 9,613,365 shares of our common stock (including 1,034,483 shares of common stock purchased by RSL and the full exercise of the underwriters' option to purchase 1,253,917 additional shares of common stock) at a price to the public of$14.50 per share, for net proceeds to us of$131.0 million , after deducting underwriting discounts and commissions and offering expenses. During May andJune 2020 , an aggregate of 11,438,290 warrants were exercised for an aggregate of 5,719,145 shares of our common stock at a price of$11.50 per share, for net proceeds to us of$65.8 million . InSeptember 2020 , we completed an underwritten public offering of 6,060,606 shares of our common stock (including 380,000 shares of common stock purchased by RSL and the full exercise of the underwriters' option to purchase 790,513 additional shares of common stock) at a price to the public of$33.00 per share, for net proceeds to the Company of approximately$188.1 million , after deducting underwriting discounts and commissions and offering expenses. InJanuary 2021 , we filed a shelf registration statement on Form S-3 with theSEC which permits the offering, issuance and sale by us of up to a maximum aggregate offering price of$900 million of our common stock, of which$150 million may be issued and sold pursuant to an at-the-market (ATM) offering program for sales of our common stock under a sales agreement withSVB Leerink LLC , subject to certain conditions as specified in the sales agreement. We agreed to paySVB Leerink up to 3% of the gross proceeds sold through the sale agreement. Our common stock would be sold at prevailing market prices at the time of the sale and, as a result, prices may vary. We have not issued or sold any securities pursuant to the shelf registration statement or ATM offering program. 118 -------------------------------------------------------------------------------- Table of Contents We expect to continue to incur significant expenses and increasing operating losses at least for the next several years. We have never generated any revenue and we do not expect to generate product revenue unless and until we successfully complete development and obtain regulatory approval for IMVT-1401 or any future product candidate. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our planned clinical trials, timing of IMVT-1401 manufacturing, HanAll milestone payments and our expenditures on other research and development activities. We anticipate that our expenses will increase substantially as we: •fund our clinical trials of IMVT-1401; •fund our clinical development programs; •launch any potential Phase 2 proof-of-concept studies of IMVT-1401 in additional indications; •incur costs associated with the pause, analysis and safety review of the clinical trials of IMVT-1401; •achieve milestones under our agreements with third parties, including the HanAll Agreement, that will require us to make substantial payments to those parties; •seek to identify, acquire, develop and commercialize additional product candidates; •integrate acquired technologies into a comprehensive regulatory and product development strategy; •maintain, expand and protect our intellectual property portfolio; •hire scientific, clinical, quality control and administrative personnel; •add operational, financial and management information systems and personnel, including personnel to support our drug development efforts; •commence the number of trials required for approval; •seek regulatory approvals for any product candidates that successfully complete clinical trials; •ultimately establish a sales, marketing and distribution infrastructure and scale up external manufacturing capabilities to commercialize any drug candidates for which we may obtain regulatory approval; and •incur insurance, legal and other regulatory compliance expenses to operate as a public company. Our primary use of cash is to fund our clinical trials and clinical development activities. Our current funds will not be sufficient to enable us to complete all necessary development and commercially launch IMVT-1401. We anticipate that we will continue to incur net losses for the foreseeable future. Until such time, if ever, as we can generate substantial product revenue from sales of IMVT-1401 or any future product candidate, we expect to finance our cash needs through a combination of equity offerings, debt financings and potential collaboration, license or development agreements. Our ability to raise additional capital may be adversely impacted by potential worsening global economic conditions and the recent disruptions to, and volatility in, the credit and financial markets inthe United States and worldwide resulting from the ongoing COVID-19 pandemic. We do not currently have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect your rights as a common stockholder. 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 collaborations, strategic alliances or marketing, distribution or licensing arrangements with third parties, we may be required to relinquish valuable rights to future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. Adequate additional funding may not be available to us on acceptable terms, or at all. If we are unable to raise capital in sufficient amounts or on terms acceptable to us, we may be required to delay, limit, reduce or terminate our drug development or future commercialization efforts or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves or potentially discontinue operations. 119 -------------------------------------------------------------------------------- Table of Contents Cash Flows The following table sets forth a summary of our cash flows for the years endedMarch 31, 2021 and 2020 (in thousands): Years EndedMarch 31, 2021 2020
Net cash used in operating activities
(210) (31)
Net cash provided by financing activities 383,112 146,974
Operating Activities Cash provided by operating activities represents the cash receipts and disbursements related to all of our activities other than investing and financing activities. Operating cash flow is derived by adjusting our net loss for non-cash items and changes in operating assets and liabilities. For the year endedMarch 31, 2021 ,$83.3 million of cash was used in operating activities. This was primarily attributable to a net loss from operations for the year of$107.4 million , partially offset by non-cash charges of$19.5 million and a net change in operating assets and liabilities of$4.6 million . The non-cash charges consisted mainly of stock-based compensation of$18.8 million , reflecting the higher headcount to support increased research and development and business operations during the year endedMarch 31, 2021 . The change in our operating assets and liabilities was primarily due to an increase of$5.7 million in accounts payable and accrued expenses, primarily driven by increased research and development efforts as well as higher general and administrative activities, and the settlement of a$3.0 million value-added tax receivable inApril 2020 . These changes were partially offset by an increase of$2.9 million in prepaid expenses, driven by the timing of payments related to clinical research and contract manufacturing activities. For the year endedMarch 31, 2020 ,$53.4 million of cash was used in operating activities. This was primarily attributable to a net loss from operations for the year of$66.4 million , non-cash charges of$8.2 million and a net change in operating assets and liabilities of$4.8 million . The non-cash charges consisted mainly of stock-based compensation of$7.0 million and$1.6 million from the write-off of deferred offering costs. The change in our operating assets and liabilities was primarily due to an increase of$7.5 million in accounts payable and accrued expenses, primarily driven by increased research and development efforts and general and administrative activities, partially offset by an increase of$2.8 million in prepaid expenses. Investing Activities For the years endedMarch 31, 2021 and 2020, cash used in investing activities was related to the purchase of computer equipment. Financing Activities For the year endedMarch 31, 2021 ,$383.1 million of cash provided by financing activities consisted of$319.1 million in cash received, net of underwriting discounts and commissions and offering expenses, as a result of the follow-on public offerings inApril 2020 andSeptember 2020 and$65.8 million from the issuance of common stock as a result of the redemption of outstanding warrants, partially offset by the repayment of a note payable to RSL. For the year endedMarch 31, 2020 ,$147.0 million of cash provided by financing activities consisted of$111.0 million in cash received as a result of the Business Combination,$35.0 million in proceeds from the issuance of convertible promissory notes,$7.9 million from the issuance of promissory notes to RSL, and$1.2 million in capital contributions by RSL, partially offset by$5.0 million in repayments of convertible promissory notes and the payment of offering costs of$3.1 million . Outlook Based on our existing cash balance as ofMarch 31, 2021 of$400.1 million , our research and development plans and our timing expectations related to our development programs for IMVT-1401, we expect to be able to fund our operating expenses and capital expenditure requirements into the second half of the calendar year 2023. However, we have based this estimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. Contractual Obligations and Commitments As ofMarch 31, 2021 , other than contingent payments pursuant to the HanAll Agreement and sublease agreements (as discussed below), we did not have any ongoing material financial commitments, such as lines of credit or guarantees, that we expect to affect our liquidity over the next several years. 120 -------------------------------------------------------------------------------- Table of Contents In the normal course of business, we enter into agreements with CROs for clinical trials and with vendors for nonclinical studies, manufacturing and other services and products for operating purposes, which agreements are cancellable by us at any time, subject to payment of remaining obligations under binding purchase orders and, in certain cases, nominal early-termination fees. These commitments are not deemed significant. We have not included potential future payments due under the HanAll Agreement in a table of contractual obligations because the payment obligations under this agreement are contingent upon future events. As ofMarch 31, 2021 , the aggregate maximum amount of milestone payments we could be required to make under the HanAll Agreement is$442.5 million upon the achievement of certain development, regulatory and sales milestone events. InMay 2019 , we achieved our first development and regulatory milestone under the HanAll Agreement resulting in a$10.0 million milestone payment that was paid by us inAugust 2019 . We are also required to reimburse HanAll for half of budgeted research and development costs incurred by HanAll with respect to IMVT-1401, up to an aggregate of$20.0 million . Sublease Agreements InJune 2020 , we entered into two sublease agreements with RSI, for the two floors of the building that serves as our headquarters inNew York . The subleases will expire onFebruary 27, 2024 andApril 29, 2024 , respectively, and have scheduled rent increases each year. The future fixed operating lease payments under both sublease agreements are$3.5 million over a lease period of approximately three years. InApril 2020 , we entered into a sublease agreement with an unrelated party for one floor of a building inNorth Carolina . The sublease will expire onFebruary 28, 2022 and has no scheduled rent increases. The future fixed operating lease payments under the sublease agreement are$0.1 million over the remaining lease period of 11 months. For more information on such subleases, see "Note 11 - Leases" to our consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. Off-Balance Sheet Arrangements During the periods presented, we did not have any off-balance sheet arrangements, as defined underSEC rules. Critical Accounting Policies and Significant Judgments and Estimates Our management's discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance withU.S. GAAP. The preparation of these consolidated financial statements requires us to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as of the date of the balance sheet, and the reported amounts of expenses during the reporting period. In accordance withU.S. GAAP, we evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We define our critical accounting policies as those underU.S. GAAP 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. While our significant accounting policies are more fully described in "Note 2 - Summary of Significant Accounting Policies" to our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K, we believe the following are the critical accounting policies used in the preparation of our consolidated financial statements that require significant estimates and judgments. Research and Development Expenses Research and development costs with no alternative future use are expensed as incurred. We accrue costs for clinical trial activities based upon estimates of the services received and related expenses incurred that have yet to be invoiced by contract research organizations. In making these estimates, we consider various factors, including status and timing of services performed, the number of patients enrolled and the rate of patient enrollment. Payments for a product license prior to regulatory approval of the product and payments for milestones achieved prior to regulatory approval of the product are expensed in the period incurred as research and development expenses. Research and development costs are charged to expense when incurred and primarily consist of employee compensation and expenses from third partieswho conduct research and development activities (including manufacturing) on our behalf. 121 -------------------------------------------------------------------------------- Table of Contents Stock-Based Compensation We recognize stock-based compensation expense related to stock options based on the estimated fair value of the awards on the date of grant. We estimate the grant date fair value, and the resulting stock-based compensation expense, using the Black-Scholes option pricing model. Restricted stock units are valued at the market price of the Company's common stock on the date of grant. The grant date fair value of the stock-based awards with graded vesting is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. We account for forfeitures as they occur. The Black-Scholes option pricing model requires the use of highly subjective assumptions, which determine the fair value of stock-based awards. These assumptions include: Expected Term. The expected term represents the period that our stock-based awards are expected to be outstanding and is determined using the simplified method (based on the mid-point between the vesting date and the end of the contractual term). Expected Volatility. Prior to the Business Combination, we were a privately-held company and did not have any trading history for our common stock. The expected volatility was estimated using weighted average measures of implied volatility and the historical volatility of our peer group of companies for a period equal to the expected life of the stock options. Our peer group of publicly-traded biopharmaceutical companies was chosen based on their similar size, stage in the life cycle or area of specialty. Because we do not have an extended trading history for our shares of common stock since the closing of the Business Combination, the method used to estimate the expected volatility remained unchanged. Risk-Free Interest Rate. The risk-free interest rate is based on the rates paid on securities issued by theU.S. Treasury with a term approximating the expected life of the stock options. Expected Dividend. We have never paid, and do not anticipate paying, cash dividends on our common stock. Therefore, the expected dividend yield was assumed to be zero. Prior to the closing of the Business Combination, the fair value of our common stock was estimated on each grant date by our board of directors. In order to determine the fair value of our common stock, our board of directors considered, among other things, timely valuations of our common stock prepared by an unrelated third-party valuation firm in accordance with the guidance provided by theAmerican Institute of Certified Public Accountants Practice Guide , Valuation of Privately-Held-Company Equity Securities Issued as Compensation. Given the absence of a public trading market for our common stock, our board of directors exercised reasonable judgment and considered a number of objective and subjective factors to determine the best estimate of the fair value of our common stock, including (1) our business, financial condition and results of operations, including related industry trends affecting our operations; (2) our forecasted operating performance and projected future cash flows; (3) the illiquid nature of our common stock; (4) the rights and privileges of our common stock; (5) market multiples of our most comparable public peers and (6) market conditions affecting our industry. After the closing of the Business Combination, our board of directors determined the fair value of each share of common stock underlying stock-based awards based on the closing price of our common stock as reported by Nasdaq on the date of grant. A component of total stock-based compensation expense relates to the RSL common stock awards and options issued by RSL to its employees. Stock-based compensation expense is allocated to us by RSL based upon the relative percentage of time utilized by RSL employees on our matters. The fair value of the RSL common stock awards is determined on the date of grant and that fair value is recognized over the requisite service period. Significant judgment and estimates were used to estimate the fair value of these awards and options, as they are not publicly traded. RSL common share awards and options are subject to specified vesting schedules and requirements (a combination of time-based, performance-based and corporate event-based vesting terms, including targets for post-IPO market capitalization and future financing events of RSL). The fair value of each RSL option is estimated on the date of grant using the Black-Scholes option pricing model. Item 7A. Quantitative and Qualitative Disclosures About Market Risk Under SEC rules and regulations, because we are considered to be a "smaller reporting company", we are not required to provide the information required by this item in this report. 122 -------------------------------------------------------------------------------- Table of Contents Item 8. Financial Statements and Supplementary Data Immunovant, Inc. Index to Consolidated Financial Statements Page Report s of Independent Registered Public Accounting Firm 125
Consolidated Financial Statements:
Consolidated Balance Sheets as of
128
Consolidated Statements of Operations for the Years Ended
1 and 20 20 129
Consolidated Statements of Comprehensive Loss for the Years Ended
130
Consolidated Statements of Stockholders' Equity for the Years Ended
131
Consolidated Statements of Cash Flows for the Years Ended
1 and 20 20 132 Notes t o Consolidated Financial Statements 133 123
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Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors ofImmunovant, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets ofImmunovant, Inc. (the Company) as ofMarch 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows for each of the two years in the period endedMarch 31, 2021 , and the related notes (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company atMarch 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period endedMarch 31, 2021 , in conformity withU.S. generally accepted accounting principles. We also have audited, in accordance with the standards of thePublic Company Accounting Oversight Board (United States ) (PCAOB), the Company's internal control over financial reporting as ofMarch 31, 2021 , based on criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of theTreadway Commission (2013 framework) and our report datedJune 1, 2021 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. 124 -------------------------------------------------------------------------------- Table of Contents Clinical Trial Accrual Description of the As discussed in Note 2 to the consolidated financial statements, the Company Matter accrues costs for clinical trial activities based
upon estimates of the
services received and related expenses incurred
that have yet to be invoiced
by contract research organizations. In making
these estimates, the Company
considers various factors, including status and
timing of services performed,
the number of patients enrolled and the rate of
patient enrollment.
Auditing the Company's accrual for clinical trial
costs is especially complex
due to the fact that information necessary to
estimate the accruals is
accumulated from clinical research organizations
and the Company's assessment
of that information is subject to variability and
uncertainty. In addition, in
certain circumstances, the determination of the
nature and amount of services
that have been received during the reporting
period requires judgment because
the timing and pattern of vendor invoicing does
not correspond to the level of
services provided and there may be delays in
invoicing from clinical study
sites and other vendors.
How We Addressed the We obtained an understanding, evaluated the design, and tested the operating Matter in Our Audit effectiveness of internal controls that addressed the identified risks related
to the information used in the Company's process
for recording accrued
clinical trial costs. For example, we tested
controls over management's review
of clinical trial progress in comparison to
information and invoices received
from third parties, and over the completeness and
accuracy of data used to
calculate the accrual. To test the clinical trial accrual, our audit
procedures included, among
others, reading a sample of the Company's
agreements with the service
providers to understand key financial and
contractual terms and testing the
accuracy and completeness of the underlying data
used in the accrual
computations. We also evaluated management's
estimates of the vendor's
progress for a sample of clinical trials by making
direct inquiries of the
Company's operations personnel overseeing the
clinical trials and obtaining
information directly from certain service
providers about the service
providers' estimate of costs that had been
incurred through
assessed the historical accuracy of the clinical
trial accrual and analyzed
the underlying data to evaluate changes in the
clinical trial accrual that
would result from reasonable changes in the
underlying data. To evaluate the
completeness of the accruals, we also examined
subsequent invoices from the
service providers and cash disbursements to the
service providers, to the
extent such invoices were received, or payments
were made prior to the date
that the consolidated financial statements were issued. /s/Ernst & Young LLP We have served as the Company's auditor since 2018.Iselin, New Jersey June 1, 2021 125
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Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of
Opinion on Internal Control Over Financial Reporting
We have auditedImmunovant, Inc.'s internal control over financial reporting as ofMarch 31, 2021 , based on criteria established in Internal Control-Integrated Framework issued by theCommittee of Sponsoring Organizations of theTreadway Commission (2013 framework) (the COSO criteria). In our opinion,Immunovant, Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as ofMarch 31, 2021 , based on the COSO criteria. We also have audited, in accordance with the standards of thePublic Company Accounting Oversight Board (United States ) (PCAOB), the consolidated balance sheets of the Company as ofMarch 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders' equity, and cash flows for each of the two years in the period endedMarch 31, 2021 , and the related notes and our report datedJune 1, 2021 expressed an unqualified opinion thereon. Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with theU.S. federal securities laws and the applicable rules and regulations of theSecurities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/Ernst & Young LLP Iselin, New Jersey June 1, 2021 126
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Table of Contents IMMUNOVANT, INC. Consolidated Balance Sheets (In thousands, except share and per share data) March 31, 2021 2020 Assets Current assets: Cash$ 400,146 $ 100,571 Prepaid expenses 8,312 5,460 Income tax receivable 548 36 Value-added tax receivable - 3,009 Total current assets 409,006 109,076 Operating lease right-of-use assets 3,282 - Property and equipment, net 201 65 Deferred offering costs - 246 Total assets$ 412,489 $ 109,387 Liabilities and Stockholders' Equity Current liabilities: Accounts payable$ 2,432 $ 1,190 Accrued expenses 15,160 10,938 Current portion of operating lease liabilities 1,179 - Due to Roivant Sciences Ltd. - 3,190 Total current liabilities 18,771 15,318 Operating lease liabilities, net of current portion 2,238 - Total liabilities 21,009 15,318 Commitments and contingencies (Note 12) Stockholders' equity:(1) Series A preferred stock, par value$0.0001 per share, 10,000 shares authorized, issued and outstanding atMarch 31, 2021 and March 31, 2020 - -
Preferred stock, par value
- -
Common stock, par value
10 5 Additional paid-in capital 590,425 185,306 Accumulated other comprehensive loss (298) (16) Accumulated deficit (198,657) (91,226) Total stockholders' equity 391,480 94,069 Total liabilities and stockholders' equity $
412,489
(1)Retroactively restated for the reverse recapitalization as described in Note 1.
The accompanying notes are an integral part of these consolidated financial
statements. 127
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Table of Contents IMMUNOVANT, INC. Consolidated Statements of Operations (In thousands, except share and per share data) Years Ended March 31, 2021 2020 Operating expenses: Research and development (includes$7,033 and$3,130 of stock-based$ 68,604 $ 47,927 compensation expense for the years endedMarch 31, 2021 and 2020, respectively)(1) General and administrative (includes$11,789 and$3,833 of 39,513 18,151 stock-based compensation expense for the years endedMarch 31, 2021 and 2020, respectively)(2) Total operating expenses 108,117 66,078 Interest expense - 625 Other income, net (328) (412) Loss before (benefit) provision for income taxes (107,789) (66,291) (Benefit) provision for income taxes (358) 97 Net loss$ (107,431) $ (66,388) Net loss per common share - basic and diluted(3)$ (1.22) $ (1.54) Weighted average shares outstanding - basic and diluted(3) 87,756,513 43,199,191 (1)Includes$340 and$159 of costs allocated fromRoivant Sciences Ltd. for the years endedMarch 31, 2021 and 2020, respectively. (2)Includes$1,180 and$1,381 of costs allocated fromRoivant Sciences Ltd. for the years endedMarch 31, 2021 and 2020, respectively. (3)Retroactively restated for the reverse recapitalization as described in Note 1.
The accompanying notes are an integral part of these consolidated financial
statements. 128
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Table of Contents IMMUNOVANT, INC. Consolidated Statements of Comprehensive Loss (In thousands) Years Ended March 31, 2021 2020 Net loss$ (107,431) $ (66,388) Other comprehensive loss: Foreign currency translation adjustments (282) (362) Total other comprehensive loss (282) (362) Comprehensive loss$ (107,713) $ (66,750)
The accompanying notes are an integral part of these consolidated financial
statements. 129
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Table of Contents IMMUNOVANT, INC. Consolidated Statements of Stockholders' Equity(1) (In thousands, except share data) Accumulated Series A Common Additional other Total preferred stock Common stock stock paid-in comprehensive Accumulated stockholders' Shares Amount Shares Amount subscribed capital income (loss) deficit equity Balance atMarch 31, 2019 - $ - 38,590,381$ 4 $ (3) $ 31,830 $ 346$ (24,838) $ 7,339 Settlement of common stock subscription - - - - 3 (2) - - 1 Issuance of preferred and common stock, net of deferred offering costs upon Business Combination and Recapitalization (See Note 3) 10,000 - 12,565,000 1 - 109,771 - - 109,772 Conversion of convertible promissory notes - - 3,499,995 - - 35,587 - - 35,587 Capital contribution - stock-based compensation - - - - - 175 - - 175 Capital contribution - expenses allocated fromRoivant Sciences Ltd. - - - - - 1,157 - - 1,157 Stock-based compensation - - - - - 6,788 - - 6,788 Foreign currency translation adjustments - - - - - - (362) - (362) Net loss - - - - - - - (66,388) (66,388) Balance atMarch 31, 2020 10,000 $ - 54,655,376$ 5 $ -$ 185,306 $ (16)$ (91,226) $ 94,069 Issuance of common stock upon underwritten public offerings - - 15,673,971 2 - 318,545 - - 318,547 Issuance of common stock upon achievement of earnout shares milestones - - 20,000,000 2 - (2) - - - Vesting of sponsor restricted shares - - 1,800,000 - - - - - - Issuance of common stock upon warrants redemption - - 5,719,145 1 - 65,751 - - 65,752 Stock options exercised and vesting of restricted stock units - - 122,751 - - 907 - - 907 Capital contribution - stock-based compensation - - - - - 184 - - 184 Capital contribution - expenses allocated fromRoivant Sciences Ltd. - - - - - 1,096 - - 1,096 Stock-based compensation - - - - - 18,638 - - 18,638 Foreign currency translation adjustments - - - - - - (282) - (282) Net loss - - - - - - - (107,431) (107,431) Balance at March 31, 2021 10,000 $ -
97,971,243
$ (298)
(1)Retroactively restated for the reverse recapitalization as described in Note 1.
The accompanying notes are an integral part of these consolidated financial
statements. 130
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Table of Contents IMMUNOVANT, INC. Consolidated Statements of Cash Flows (In thousands) Years Ended March 31, 2021 2020 Cash flows from operating activities Net loss$ (107,431) $ (66,388) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation 18,822 6,963 Depreciation on property and equipment 65 21 Foreign currency translation adjustments (282) (362) Loss on disposal of property and equipment - 13 Gain on extinguishment of convertible notes - (38) Write-off of deferred offering costs - 1,628 Non-cash lease expense 933 - Changes in operating assets and liabilities: Prepaid expenses (2,852) (2,824) Income tax receivable (512) 13 Value-added tax receivable 3,009 (96) Accounts payable 1,251 967 Accrued expenses 4,468 6,502 Operating lease liabilities (798) - Due to Roivant Sciences Ltd. - 244 Net cash used in operating activities (83,327) (53,357) Cash flows from investing activities Purchases of property and equipment (210) (31) Net cash used in investing activities (210) (31) Cash flows from financing activities Capital contributions 1,096 1,157
Proceeds from issuance of common stock upon underwritten public offering
319,783 - Proceeds from issuance of common stock upon warrant redemption 65,752 - Proceeds from stock options exercised 907 - Payment of deferred offering costs (1,236) (3,107) Proceeds from notes payable to Roivant Sciences Ltd. - 7,907
Repayment of convertible promissory note payable to
(3,190) (2,500) Proceeds from convertible promissory notes - 35,000 Repayment of convertible promissory notes - (2,500) Settlement of common stock subscribed - 1 Recapitalization transaction (See Note 3) - 111,016 Net cash provided by financing activities 383,112 146,974 Net change in cash 299,575 93,586 Cash - beginning of period 100,571 6,985 Cash - end of period$ 400,146 $ 100,571 Non-cash operating activity Operating lease right-of-use assets obtained and exchanged for operating lease liabilities$ 4,215 $ - Non-cash investing activity Payable for purchase of property and equipment $ -$ 9 Non-cash financing activity Conversion of convertible promissory notes to common stock $ -$ 35,000 Deferred offering costs in accrued expenses - 246
Cancellation of interest on convertible promissory notes recorded in equity
- 587 Total non-cash financing activity $ -$ 35,833 Supplemental disclosure of cash paid: Income taxes $
166
The accompanying notes are an integral part of these consolidated financial
statements. 131
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IMMUNOVANT, INC. Notes to Consolidated Financial Statements Note 1 - Organization and Nature of Business [A] Description of BusinessImmunovant, Inc. together with its wholly owned subsidiaries (the "Company" or "Immunovant") (formerly known asHealth Sciences Acquisitions Corporation ) is a clinical-stage biopharmaceutical company focused on enabling normal lives for people with autoimmune diseases. The Company is developing a novel, fully human monoclonal antibody, IMVT-1401 (formerly referred to as "RVT-1401"), that selectively binds to and inhibits the neonatal fragment crystallizable receptor. The Company intends to develop IMVT-1401 for indications in which there is robust evidence that pathogenic immunoglobulin G antibodies drive disease manifestation and for which reduction of these antibodies should lead to clinical benefit for patients with autoimmune diseases.
The Company has determined that it has one operating and reporting segment.
Reverse Recapitalization
OnDecember 18, 2019 ,Health Sciences Acquisitions Corporation ("HSAC") completed the acquisition ofImmunovant Sciences Ltd. ("ISL") pursuant to the share exchange agreement dated as ofSeptember 29, 2019 (the "Share Exchange Agreement"), by and among HSAC, ISL, the stockholders of ISL (the "Sellers"), andRoivant Sciences Ltd. ("RSL"), as representative of the Sellers (the "Business Combination"). As of immediately prior to the closing of the Business Combination, the Sellers owned 100% of the issued and outstanding common shares of ISL ("ISL Shares"). At the closing of the Business Combination, HSAC acquired 100% of the issued and outstanding ISL Shares, in exchange for 42,080,376 shares of HSAC's common stock issued to the Sellers and 10,000 shares of HSAC Series A preferred stock issued to RSL. Upon the closing of the Business Combination, ISL became a wholly owned subsidiary of HSAC and HSAC was renamed "Immunovant, Inc. " The Business Combination was accounted for as a reverse recapitalization and HSAC was treated as the "acquired" company for accounting purposes. The Business Combination was accounted as the equivalent of ISL issuing stock for the net assets of HSAC, accompanied by a recapitalization. Accordingly, all historical financial information presented in these consolidated financial statements represents the accounts of ISL and its wholly owned subsidiaries "as if" ISL is the predecessor to the Company. The shares prior to the Business Combination have been retroactively restated as shares reflecting the exchange ratio established in the Business Combination (0.48906624Immunovant, Inc. shares for 1 ISL Share). ISL was founded onJuly 6, 2018 as aBermuda exempted limited company and a wholly owned subsidiary of RSL. In July andAugust 2018 , ISL incorporated its wholly owned subsidiaries,Immunovant Sciences Holdings Ltd. ("ISHL"), a private limited company incorporated in theUnited Kingdom under the laws ofEngland andWales ,IMVT Corporation (formerly,Immunovant, Inc. ), aDelaware corporation based inthe United States of America , andImmunovant Sciences GmbH ("ISG"), a limited liability company formed under the laws ofSwitzerland . ISG holds all of the Company's intellectual property rights. HSAC was incorporated inDelaware onDecember 6, 2018 and was formed as a blank check company for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses. References herein to "date of formation" or "date of inception" refer to the founding of ISL. One of the primary purposes of the Business Combination was to provide a platform for ISL to gain access to theU.S. capital markets. See Note 3 - Business Combination and Recapitalization for additional details on the Business Combination. [B] Liquidity The Company has incurred significant losses and negative cash flows from operations since its inception. As ofMarch 31, 2021 , the Company's cash totaled$400.1 million and its accumulated deficit was$198.7 million . The Company has not generated any revenues to date and does not anticipate generating any revenues unless and until it successfully completes development and obtains regulatory approval for IMVT-1401 or any future product candidate. Management expects to incur additional losses in the future to fund its operations and conduct product research and development and recognizes the need to raise additional capital to fully implement its business plan. 132 -------------------------------------------------------------------------------- Table of Contents The Company intends to raise such additional capital through the issuance of equity securities, debt financings or other sources in order to further implement its business plan. However, if such financing is not available at adequate levels, the Company will need to reevaluate its operating plan and may be required to delay the development of its product candidates. The Company currently expects that its existing cash as ofMarch 31, 2021 will be sufficient to fund its operating expenses and capital expenditure requirements into the second half of the calendar year 2023 from the date the consolidated financial statements are issued. Note 2 - Summary of Significant Accounting Policies
[A] Basis of Presentation
The Company's fiscal year ends onMarch 31 , and its first three fiscal quarters end onJune 30 ,September 30 , andDecember 31 . The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles inthe United States ("U.S. GAAP"). Any reference in these notes to applicable guidance is meant to refer to the authoritativeU.S. GAAP as found in the Accounting Standards Codification ("ASC") and Accounting Standards Updates ("ASU") of theFinancial Accounting Standards Board ("FASB"). The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. The Company has no unconsolidated subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. [B] Use of Estimates The preparation of consolidated financial statements in conformity withU.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. The Company regularly evaluates estimates and assumptions related to assets, liabilities, stock-based compensation, litigation accruals, clinical trial accruals, operating leases, research and development costs and income taxes. The Company bases its estimates and assumptions on historical experience and on various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates. Additionally, the Company assessed the impact that the COVID-19 pandemic has had on its operations and financial results as ofMarch 31, 2021 and through the issuance of this report. The Company's analysis was informed by the facts and circumstances as they were known to the Company. This assessment considered the impact COVID-19 may have on financial estimates and assumptions that affect the reported amounts of assets and liabilities and expenses. [C] Risks and Uncertainties The Company is subject to risks common to early-stage companies in the biopharmaceutical industry including, but not limited to, uncertainties related to commercialization of products, regulatory approvals, dependence on key products, key personnel and third-party service providers such as contract research organizations, protection of intellectual property rights and the ability to make milestone, royalty or other payments due under any license, collaboration or supply agreements. [D] Concentration of Credit Risk Financial instruments that potentially subject the Company to concentration of credit risk include cash. AtMarch 31, 2021 , the cash balance is kept in one banking institution that the Company believes is of high credit quality and is in excess of federally insured levels. The Company maintains its cash with an accredited financial institution and accordingly, such funds are subject to minimal credit risk. The Company has not experienced any losses on its cash. [E] Cash and Cash Equivalents The Company considers all highly liquid investments with original maturities of three months or less from the date of purchase to be cash equivalents. AtMarch 31, 2021 , cash consisted of cash held at a financial institution. There were no cash equivalents as ofMarch 31, 2021 and 2020. 133 -------------------------------------------------------------------------------- Table of Contents [F] Property and Equipment Property and equipment, consisting of computers, is recorded at cost. Maintenance and repairs that do not improve or extend the lives of the respective assets are expensed to operations as incurred. Depreciation is recorded using the straight-line method over the estimated useful life of three years. Upon disposal, retirement or sale, the related cost and accumulated depreciation is removed from the accounts and any resulting gain or loss is included in the consolidated statements of operations. [G] Impairment of Long-lived Assets Long-lived assets, such as right-of-use assets due to operating leases, property and equipment, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary. [H] Contingencies The Company, from time to time, may be a party to various disputes and claims arising from normal business activities. The Company continually assesses litigation to determine if an unfavorable outcome would lead to a probable loss or reasonably possible loss which could be estimated. The Company accrues for all contingencies at the earliest date at which the Company deems it probable that a liability has been incurred and the amount of such liability can be reasonably estimated. If the estimate of a probable loss is a range and no amount within the range is more likely than another, the Company accrues the minimum of the range. In the cases where the Company believes that a reasonably possible loss exists, the Company discloses the facts and circumstances of the litigation, including an estimable range, if possible. Legal defense costs associated with loss contingencies are expensed in the period incurred. Additionally, the Company records a receivable for rights to insurance recoveries, limited to the extent of incurred or probable losses, when such recoveries have been agreed to with third-party insurers and when receipt is deemed probable. This includes instances when the third-party insurers have agreed to pay, on the Company's behalf, certain legal defense costs and settlement amounts directly to applicable law firms and settlement funds. [I] Research and Development Expenses Research and development costs with no alternative future use are expensed as incurred. Payments for a product license prior to regulatory approval of the product and payments for milestones achieved prior to regulatory approval of the product are expensed in the period incurred as research and development. Milestone payments made in connection with regulatory approvals are capitalized and amortized to cost of product sales over the remaining useful life of the asset. Research and development expenses primarily consist of employee-related costs, milestone payments under the HanAll Agreement and expenses from third partieswho conduct research and development activities (including manufacturing) on behalf of the Company. The Company accrues costs for clinical trial activities based upon estimates of the services received and related expenses incurred that have yet to be invoiced by contract research organizations. In making these estimates, the Company considers various factors, including status and timing of services performed, the number of patients enrolled and the rate of patient enrollment. The Company accrues costs for non-clinical studies and contract manufacturing activities over the service periods specified in the contracts and are adjusted as necessary based upon an ongoing review of the level of effort and costs actually incurred. The estimate of the work completed is developed through discussions with internal personnel and external services providers as to the progress toward completion of the services and the agreed-upon fee to be paid for such services. As actual costs become known, the accrued estimates are adjusted. Such estimates are not expected to be materially different from amounts actually incurred. 134 -------------------------------------------------------------------------------- Table of Contents [J] Leases The Company's operating leases primarily relate to its three subleased premises, two inNew York and one inNorth Carolina . Operating lease right-of-use ("ROU") assets represent the Company's right to use an underlying asset during the lease term, and operating lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are initially recognized based on the present value of the future fixed lease payments over the expected lease term at commencement date calculated using the Company's incremental borrowing rate applicable to the lease asset, unless the implicit rate is readily determinable. Operating lease ROU assets also include any lease payments made at or before lease commencement, adjusted by any initial direct costs and exclude any lease incentives received. The Company determines the lease term as the non-cancelable period of the lease and may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Leases with a term of 12 months or less are not recognized on the consolidated balance sheets. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Variable lease costs such as common area costs and other operating costs are expensed as incurred. The Company accounts for lease and non-lease components as a single lease component for all its facilities leases. [K] Income Taxes The Company accounts for income taxes under the asset and liability method. Under this method, deferred tax assets and liabilities are determined on the basis of the differences between amounts in the consolidated financial statements and the tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income tax (benefit) expense in the accompanying consolidated statements of operations in the period that includes the enactment date. The Company recognizes deferred tax assets to the extent that it believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies and results of recent operations. If the Company determines that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, the Company would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes. The Company has not recognizedU.S. income taxes and foreign withholding taxes on undistributed earnings of foreign subsidiaries which the Company has determined to be indefinitely reinvested. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit will more likely than not be realized. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances. The Company's policy is to recognize interest and/or penalties related to income tax matters in provision for income taxes. [L] Stock-based Compensation Stock-based awards to employees and directors are valued at fair value on the date of the grant and that fair value is recognized as stock-based compensation expense over the requisite service period. The grant date fair value of the stock-based awards with graded vesting is recognized on a straight-line basis over the requisite service period, which is generally the vesting period of the respective awards. The Company values its stock options that only have service vesting requirements or performance-based awards without market conditions using the Black-Scholes option pricing model. For performance-based awards with market conditions, the Company determines the fair value of awards as of the grant date using a Monte Carlo simulation model. Stock-based compensation related to restricted stock awards is based on the fair value of the Company's common stock on the grant date. Certain assumptions need to be made with respect to utilizing the Black-Scholes option pricing model, including the expected life of the award, volatility of the underlying shares, the risk-free interest rate, expected dividend yield and the fair value of the Company's common stock. Since the Company has limited option exercise history, it has generally elected to estimate the expected life of an award based upon the "simplified method" with the continued use of this method extended until such time the Company has sufficient exercise history. The expected share price volatility for the Company's common stock is estimated by taking the average historical price volatility for the Company's peers. The risk-free interest rate is based on the rates paid on securities issued by theU.S. Treasury with a term approximating the expected life of the equity award. As the Company has never paid and does not anticipate paying cash dividends on its common stock, the expected dividend yield is assumed to be zero. The Company accounts for pre-vesting award forfeitures when they occur. 135 -------------------------------------------------------------------------------- Table of Contents As part of the valuation of stock-based compensation under the Black-Scholes option pricing model, it is necessary for the Company to estimate the fair value of its common stock. Prior to the closing of the Business Combination, the fair value of the Company's common stock was estimated on each grant date by the Company's board of directors. Given the absence of a public trading market, and in accordance with theAmerican Institute of Certified Public Accountants' Practice Guide , Valuation of Privately-Held-Company Equity Securities Issued as Compensation, the Company exercised reasonable judgment and considered numerous objective and subjective factors to determine its best estimate of the fair value of its common stock. The estimation of the fair value of the common stock considered factors including the following: the estimated present value of the Company's future cash flows; the Company's business, financial condition and results of operations; the Company's forecasted operating performance; the illiquid nature of the Company's common stock; industry information such as market size and growth; market capitalization of comparable companies and the estimated value of transactions such companies have engaged in; and macroeconomic conditions. After the closing of the Business Combination, the Company's board of directors determined the fair value of each share of common stock underlying stock-based awards based on the closing price of the Company's common stock as reported by Nasdaq on the date of grant. Determining the appropriate amount to expense for performance-based awards based on the achievement of stated goals requires judgment. The estimate of expense is revised periodically based on the probability of achieving the required performance targets and adjustments are made as appropriate. The cumulative impact of any revisions is reflected in the period of change. If any applicable financial performance goals are not met, no compensation expense is recognized, and any previously recognized compensation cost is reversed. [M] Fair Value of Financial InstrumentsThe Company applies a fair value framework in order to measure and disclose its financial assets and liabilities. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy requires an entity to maximize the use of observable inputs, where available, and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs that may be used to measure fair value: •Level 1 - Quoted prices in active markets for identical assets or liabilities. •Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Fair values are determined by utilizing quoted prices for similar assets and liabilities in active markets or other market observable inputs such as interest rates and yield curves. •Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized in Level 3. A financial instrument's level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Company's financial instruments consist of cash, accounts payable, accrued expenses and amounts due to RSL. These financial instruments are stated at their respective historical carrying amounts, which approximate fair value due to their short-term nature. There were no Level 2 or Level 3 financial instruments as ofMarch 31, 2021 or 2020. [N] Foreign Currency The Company has operations inthe United States , theUnited Kingdom ,Bermuda , andSwitzerland . The results of its non-U.S. dollar based functional currency operations are translated toU.S. dollars at the average exchange rates during the period. The Company's assets and liabilities are translated using the current exchange rate as of the consolidated balance sheet date and equity is translated using historical rates. Adjustments resulting from the translation of the consolidated financial statements of the Company's foreign functional currency subsidiaries intoU.S. dollars are excluded from the determination of net loss and are recognized in accumulated other comprehensive loss. Foreign exchange transaction gains and losses are included in other income, net in the consolidated statements of operations. 136 -------------------------------------------------------------------------------- Table of Contents [O] Net Loss per Common Share Basic net loss per common share is computed by dividing net loss applicable to common stockholders by the weighted-average number of common stock outstanding during the period. Diluted net loss per common share is computed by dividing the net loss applicable to common stockholders by the diluted weighted-average number of common stock outstanding during the period. In periods in which the Company reports a net loss, all common stock equivalents are deemed anti-dilutive such that basic net loss per common share and diluted net loss per common share are equivalent. Potentially dilutive common stock has been excluded from the diluted net loss per common share computations in all periods presented because such securities have an anti-dilutive effect on net loss per common share due to the Company's net loss. There are no reconciling items used to calculate the weighted-average number of total common stock outstanding for basic and diluted net loss per common share data. The following potentially dilutive securities have been excluded from the calculation of diluted net loss per common share due to their anti-dilutive effect: Years Ended March 31, 2021 2020 Preferred stock as converted 10,000 10,000 Restricted stock (unvested) 1,095,676 1,800,000 Stock options 7,988,999 3,873,888 Warrants (See Note 9) - 5,750,000 Earnout shares (See Note 3) - 20,000,000 Total 9,094,675 31,433,888 In addition, the convertible promissory notes issued during the year endedMarch 31, 2020 were not included in the calculation of diluted weighted-average number of common shares outstanding because they were anti-dilutive given the net loss of the Company. [P] Deferred Offering Costs Legal, accounting and other costs directly attributable to the issuance of the Company's equity are capitalized within deferred offering costs on the consolidated balance sheets and reclassified to equity upon issuance of the shares. Offering costs comprised of legal and accounting fees and other costs incurred throughJune 30, 2019 were directly related to ISL's proposed initial public offering ("IPO"). InAugust 2019 , ISL's board of directors determined to suspend ISL's IPO registration process. Accordingly, the Company has written off deferred offering costs previously capitalized to general and administrative expenses within the accompanying consolidated statement of operations for the year endedMarch 31, 2020 . Deferred offering costs as ofMarch 31, 2020 represented financing costs deferred for the follow-on underwritten public offering inApril 2020 . [Q] Common Stock Warrants The Company accounts for the issuance of common stock warrants based on the terms of the contract and whether there are any requirements for the Company to net cash settle the contract under any terms or conditions. Warrants for the purchase of 5,750,000 shares of common stock were issued by HSAC as part of the units sold in its IPO inMay 2019 . Each unit was comprised of one share of common stock and a warrant to purchase one half of one share of common stock upon the consummation of a business combination by HSAC. The warrants were classified as equity. None of the terms of the warrants were modified as a result of the Business Combination. During the year, the Company redeemed 11,438,290 warrants by issuing 5,719,145 shares of the Company's common stock and the remaining 61,710 warrants were cancelled. No warrants remain outstanding as ofMarch 31, 2021 . See Note 9 - Stockholders' Equity for additional details about common stock warrants. 137
-------------------------------------------------------------------------------- Table of Contents [R] Recently Adopted Accounting Pronouncements InAugust 2018 , the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement ("ASU 2018-13"). ASU 2018-13 removes, modifies, and adds certain recurring and nonrecurring fair value measurement disclosures, including removing disclosures around the amount(s) of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, the policy for timing of transfers between levels, and the valuation process for Level 3 fair value measurements, among other things. ASU 2018-13 adds disclosure requirements around changes in unrealized gains and losses included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and a narrative description of measurement uncertainty. The amendments in ASU 2018-13 are effective for fiscal years, and interim periods within those fiscal years, beginning afterDecember 15, 2019 . The Company has adopted ASU 2018-13 as ofApril 1, 2020 , with no impact to the Company's consolidated financial statements from the adoption of this new standard. InJune 2016 , the FASB issued ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments ("ASU 2016-13"), which requires the measurement and recognition of expected credit losses for financial assets held at amortized cost. ASU 2016-13 replaces the existing incurred loss impairment model with an expected loss model that requires the use of forward-looking information to calculate credit loss estimates. It also eliminates the concept of other-than-temporary impairment and requires credit losses on available-for-sale debt securities to be recorded through an allowance for credit losses instead of as a reduction in the amortized cost basis of the securities. ASU 2016-13 is effective for annual periods, and interim periods within those annual periods, beginning afterDecember 15, 2019 . Early adoption is permitted, including adoption in any interim period. The Company has adopted ASU 2016-13 as ofApril 1, 2020 , with no impact to the Company's consolidated financial statements from the adoption of this new standard. Recent authoritative guidance issued by the FASB (including technical corrections to the Accounting Standards Codification), theAmerican Institute of Certified Public Accountants , and theSecurities and Exchange Commission ("SEC") did not, or are not expected to, have a material impact on the Company's consolidated financial statements and related disclosures. Note 3 - Business Combination and Recapitalization As discussed in Note 1, onDecember 18, 2019 , HSAC completed the acquisition of ISL and acquired 100% of the ISL Shares in exchange for 42,080,376 shares of HSAC common stock issued to the Sellers and 10,000 shares of HSAC Series A preferred stock issued to RSL. The Business Combination was accounted for as a reverse recapitalization whereby HSAC was treated as the "acquired" company for accounting purposes. This determination was primarily based on the fact that subsequent to the Business Combination, the Sellers have a majority of the voting power of the combined company, ISL will comprise all of the ongoing operations of the combined entity, a majority of the governing body of the combined company, and ISL's senior management will comprise all of the senior management of the combined company. The Business Combination was accounted as the equivalent of ISL issuing stock for the net assets of HSAC, accompanied by a recapitalization. The net assets of HSAC were stated at historical cost with no goodwill or other intangible assets recorded. Reported amounts from operations included herein prior to the Business Combination are those of ISL. The shares, options and net loss per share available to holders of the Company's common stock, prior to the Business Combination, have been retroactively restated as shares reflecting the exchange ratio established in the Business Combination (0.48906624Immunovant, Inc. shares for 1 ISL Share). The aggregate value of the consideration paid by HSAC in the Business Combination was$420.9 million , consisting of 42,080,376 shares of HSAC's common stock and 10,000 shares of HSAC's Series A preferred stock, in each case, valued at$10.00 per share (the deemed value of the shares issued pursuant to the Share Exchange Agreement). The closing price per share on the date of the closing of the Business Combination onDecember 18, 2019 was$13.88 . As the Business Combination was accounted for as a reverse recapitalization, the$10.00 per share value is disclosed for informational purposes only in order to indicate the fair value of shares transferred. In addition, pursuant to the Share Exchange Agreement, all vested or unvested outstanding options to purchase common shares of ISL under its 2018 Equity Incentive Plan were automatically assumed by the Company and converted into options to purchase 4,408,287 shares of the Company's common stock with no changes to the terms of the awards. In connection with the Business Combination and Recapitalization, the Company incurred direct and incremental costs of$2.8 million , consisting of legal, accounting, financial advisory and other professional fees, which are included in additional paid-in capital in the consolidated balance sheet as ofMarch 31, 2020 . The Company incurred additional financial advisory fees related to the Business Combination of$2.3 million , which are included in accumulated deficit within the consolidated balance sheet as ofMarch 31, 2020 . 138 -------------------------------------------------------------------------------- Table of Contents Earnout Shares Pursuant to the Share Exchange Agreement, the Sellers were entitled to receive up to an aggregate of 20,000,000 additional shares of the Company's common stock (the "Earnout Shares") if the volume-weighted average price of the Company's shares equals or exceeds the following prices for any 20 trading days within any 30 trading-day period (the "Trading Period") followingDecember 18, 2019 , the date of the closing of the Business Combination: (i)during any Trading Period prior toMarch 31, 2023 , 10,000,000 Earnout Shares upon the achievement of a volume-weighted average price of at least$17.50 per share (the "First Earnout Milestone"); and (ii)during any Trading Period prior toMarch 31, 2025 , 10,000,000 Earnout Shares upon the achievement of a volume-weighted average price of at least$31.50 per share (the "Second Earnout Milestone"). OnMay 12 andSeptember 17, 2020 , the Company achieved the First Earnout Milestone and the Second Earnout Milestone, respectively. Accordingly, the Company issued all of the 20,000,000 Earnout Shares to the Sellers (including 17,547,938 Earnout Shares issued to RSL) during the year endedMarch 31, 2021 . Sponsor Restricted Stock Agreement In accordance with that certain restricted stock agreement, datedSeptember 29, 2019 , by and betweenHSAC and Health Sciences Holdings, LLC (the "Sponsor"), the Sponsor subjected 1,800,000 shares of its common stock ("Sponsor Restricted Shares") to potential forfeiture, with 900,000 shares to vest and be released from potential forfeiture upon achievement of each of the First Earnout Milestone and the Second Earnout Milestone (as defined above), respectively. OnMay 12 andSeptember 17, 2020 , the Company achieved the First Earnout Milestone and the Second Earnout Milestone, respectively, and, as a result, all of the 1,800,000 Sponsor Restricted Shares vested and are no longer subject to forfeiture.
Registration Rights
InMay 2019 , HSAC entered into a registration rights agreement with the Sponsor, pursuant to which the Sponsor was granted certain rights relating to the registration of securities of HSAC held by the Sponsor. InSeptember 2019 , concurrent with the execution of the Share Exchange Agreement, HSAC, the Sponsor and the Sellers entered into an amended and restated registration rights agreement (the "Registration Rights Agreement"), which became effective as of the closing of the Business Combination. Under the Registration Rights Agreement, the Sponsor and the Sellers hold registration rights that obligate the Company to register for resale under the Securities Act of 1933, as amended (the "Securities Act") all or any portion of theRegistrable Securities (as defined in the Registration Rights Agreement) held by the Sponsor and the Sellers. Each of the Sponsor, RSL and stockholders holding a majority-in-interest of all suchRegistrable Securities will be entitled to make a written demand for registration under the Securities Act of all or part of theirRegistrable Securities , so long as such shares are not then restricted under certain lock-up agreements. Subject to certain exceptions, if the Company proposes to file a registration statement under the Securities Act with respect to the Company's securities, under the Registration Rights Agreement, the Company will give notice to the Sponsor and the Sellers as to the proposed filing and offer such stockholders an opportunity to register the resale of such number of theirRegistrable Securities as they request in writing, subject to certain exceptions. In addition, subject to certain exceptions, such stockholders will be entitled under the Registration Rights Agreement to request in writing that the Company register the resale of any or all of theirRegistrable Securities on Form S-3 or any other registration statement that may be available at such time. The Registration Rights do not meet the definition of a registration payment arrangement as there are no terms that require the Company to transfer consideration to the various security holders if a registration statement is not declared effective or effectiveness is not maintained. See Note 9 - Stockholders' Equity for details of the Company's capital stock prior to and subsequent to the Business Combination and Recapitalization transaction. 139 -------------------------------------------------------------------------------- Table of Contents Note 4 - Material Agreements
License Agreement
OnDecember 19, 2017 ,Roivant Sciences GmbH ("RSG"), a wholly owned subsidiary of RSL, entered into a license agreement (the "HanAll Agreement") with HanAll Biopharma Co., Ltd. ("HanAll"). Under the HanAll Agreement, RSG received (1) the non-exclusive right to manufacture and (2) the exclusive, royalty-bearing right to develop, import, use and commercialize the antibody referred to as IMVT-1401 and certain back-up and next-generation antibodies, and products containing such antibodies, inthe United States ,Canada ,Mexico , theEuropean Union , theUnited Kingdom ,Switzerland , theMiddle East ,North Africa andLatin America (the "Licensed Territory"). In exchange for this license, RSG provided or agreed to provide the following consideration: •Upfront, non-refundable payment of$30.0 million ; •Up to$20.0 million in shared (50%) research, development, and out-of-pocket costs incurred by HanAll; •Up to an aggregate of$442.5 million (after a$10 million milestone payment) upon the achievement of certain additional development, regulatory and sales milestones; and •Tiered royalties ranging from the mid-single digits to mid-teens on net product sales subject to reduction on a product-by-product and country-by-country basis, until the later of (1) expiration of patent and regulatory exclusivity or (2) the 11th anniversary of the first commercial sale of such product in such country. Since the acquisition of IMVT-1401, RSL and the Company have performed all the development associated with IMVT-1401 and no amounts were incurred by HanAll and reported to the Company, to research or develop the technology for the years endedMarch 31, 2021 and 2020. OnAugust 18, 2018 , RSG entered into a sublicense agreement (the "Sublicense Agreement") with ISG to sublicense this technology, as well as RSG's knowhow and patents necessary for the development, manufacture or commercialization of any compound or product that pertains to immunology. OnDecember 7, 2018 , RSG issued a notice to terminate the Sublicense Agreement with ISG and entered into an assignment and assumption agreement to assign to ISG all the rights, title, interest, and future obligations under the HanAll Agreement from RSG, including all rights to IMVT-1401 from RSG in the Licensed Territory, for an aggregate purchase price of$37.8 million . As a result of the assignment of IMVT-1401 by RSG to ISG, the Company recorded a Swiss value-added tax receivable of$3.0 million , which was a reflected as a capital contribution from RSL as ofMarch 31, 2020 . InApril 2020 , the Company received the payment related to this receivable. InMay 2019 , the Company achieved its first development and regulatory milestone under the HanAll Agreement which resulted in a$10.0 million milestone payment that the Company subsequently paid inAugust 2019 . The milestone payment was recorded as a research and development expense in the accompanying consolidated statement of operations in the period incurred. Note 5 - Accrued Expenses Accrued expenses consist of the following (in thousands): March 31, 2021 2020 Research and development expenses$ 10,147 $ 8,332 Legal and professional fees 1,196 1,231 Accrued bonuses 3,138 859 Other expenses 679 516 Total accrued expenses$ 15,160 $ 10,938 140
-------------------------------------------------------------------------------- Table of Contents Note 6 -Related Party Transactions Roivant Sciences Inc. ("RSI") and RSG Services Agreements In addition to the agreements discussed in Note 4, inAugust 2018 , the Company entered into services agreements (the "Services Agreements") with RSI and RSG, under which RSI and RSG agreed to provide services related to development, administrative and financial activities to the Company during its formative period. Under each Services Agreement, the Company will pay or reimburse RSI or RSG, as applicable, for any expenses it, or third parties acting on its behalf, incurs for the Company. For any general and administrative and research and development activities performed by RSI or RSG employees, RSI or RSG, as applicable, will charge back the employee compensation expense plus a pre-determined mark-up. RSI and RSG also provided such services prior to the formalization of the Services Agreements, and such costs have been recognized by the Company in the period in which the services were rendered. Employee compensation expense, inclusive of base salary and fringe benefits, is determined based upon the relative percentage of time utilized on Company matters. All other costs will be billed back at cost. The term of the Services Agreements will continue until terminated by the Company, RSI or RSG, as applicable, upon 90 days' written notice. The consolidated financial statements also include third-party expenses that have been paid by RSI, RSG and RSL since the inception of the Company. Total expense, inclusive of salary, fringe benefits and stock-based compensation, is proportionately allocated to the Company based upon the relative percentage of time utilized on the Company's matters. For the year endedMarch 31, 2021 , the Company was charged$1.3 million by RSI, RSG and RSL which were treated as capital contributions in the accompanying consolidated financial statements. For the year endedMarch 31, 2020 , the Company was charged$1.4 million by RSI, RSG and RSL of which$1.2 million and$0.2 million were treated as capital contributions and amounts due to RSL, respectively, in the accompanying consolidated financial statements.
RSL Promissory Note
InJune 2019 , the Company entered into an interest-free promissory note payable to RSL in the amount of$5.0 million (the "June Promissory Note"). The June Promissory Note was due and payable at the earlier ofDecember 12, 2019 or upon demand by RSL. Subsequently, inAugust 2019 , the Company cancelled the June Promissory Note and entered into a convertible promissory note with RSL in the amount of$5.0 million (the "RSL Convertible Promissory Note") under the same terms as other convertible promissory notes entered into withRTW Master Fund, Ltd. andRTW Innovation Master Fund, Ltd. (the "RTW Entities"). InSeptember 2019 , the Company repaid$2.5 million aggregate principal amount of the RSL Convertible Promissory Note, and accrued interest on such amount was forgiven. The remaining aggregate principal balance of the RSL Convertible Note of$2.5 million automatically converted immediately prior to the closing of the Business Combination into shares of ISL exchangeable for an aggregate of 250,000 shares of the Company's common stock upon the closing of the Business Combination. All interest under the RSL Convertible Promissory Note was waived and cancelled immediately prior to the closing of the Business Combination. InJuly 2019 , the Company entered into an interest-free promissory note payable to RSL in the amount of$2.9 million (the "July Promissory Note"). The July Promissory Note had a 180-day term and was payable on demand upon the expiration of the term. InMay 2020 , the Company paid and settled the July Promissory Note.
RSL Information Sharing and Cooperation Agreement
InDecember 2018 , the Company entered into an amended and restated information sharing and cooperation agreement (the "Cooperation Agreement") with RSL. The Cooperation Agreement, among other things: (1) obligates the Company to deliver to RSL periodic financial statements and other information upon reasonable request and to comply with other specified financial reporting requirements; (2) requires the Company to supply certain material information to RSL to assist it in preparing any futureSEC filings; and (3) requires the Company to implement and observe certain policies and procedures related to applicable laws and regulations. The Company has agreed to indemnify RSL and its affiliates and their respective officers, employees and directors against all losses arising out of, due to or in connection with RSL's status as a stockholder under the Cooperation Agreement and the operations of or services provided by RSL or its affiliates or their respective officers, employees or directors to the Company or any of its subsidiaries, subject to certain limitations set forth in the Cooperation Agreement. No amounts have been paid or received under this agreement; however, the Company believes this agreement is material to its business and operations. Subject to specified exceptions, the Cooperation Agreement will terminate upon the earlier of (1) the mutual written consent of the parties or (2) the later of when RSL no longer (a) is required byU.S. GAAP to consolidate the Company's results of operations and financial position, account for its investment in the Company under the equity method of accounting or, by any rule of theSEC , include the Company's separate financial statements in any filings it may make with theSEC and (b) has the right to elect directors constituting a majority of the Company's board of directors. 141
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RSI Subleases
See Note 11 - Leases for a discussion of the subleases the Company has entered into with RSI. Note 7 - Income Taxes The loss before income taxes and the related tax (benefit) provision are as follows (in thousands): Years Ended March 31, 2021 2020 (Loss) income before income taxes United States$ (24,589) $ (9,245) Switzerland (82,739) (53,413) Bermuda (98) (3,661) United Kingdom 1 10 Other (364) 18 Total loss before income taxes$ (107,789) $ (66,291) Current taxes United States - Federal$ (346) $ 61 United States - State (12) 34 Other - 2 Total current tax (benefit) expense (358) 97 Deferred tax expense - -
Total (benefit) provision for income taxes
A reconciliation of the (benefit) provision for income taxes computed at theU.S. statutory rate of 21% for the years endedMarch 31, 2021 and 2020 to the (benefit) provision for income taxes reflected in the consolidated statements of operations is as follows (in thousands): Years Ended March
31,
2021
2020
Income tax benefit at statutory rate$ (22,636) $ (13,921) Foreign rate differential 6,662 4,255 Net operating loss carryback (363) - Research and development credits (1,303) (1,093) Valuation allowance 15,427 9,988 Non-deductible expense 1,581 951 Excess tax benefits from stock-based compensation (439)
-
Other 713
(83)
Total (benefit) provision for income taxes$ (358) $
97
The Company's effective tax rate was 0.33% and (0.15)% for the years endedMarch 31, 2021 andMarch 31, 2020 , respectively, primarily driven by the Company's jurisdictional earnings by location, certain non-deductible expenditures, research and development credits, and a valuation allowance that eliminates the Company's global net deferred tax assets. For the year endedMarch 31, 2021 , the effective tax rate was also impacted by a tax benefit of approximately$0.4 million related to net operating loss carrybacks. 142 -------------------------------------------------------------------------------- Table of Contents Deferred taxes reflect the tax effects of the differences between the amounts recorded as assets and liabilities for financial reporting purposes and the comparable amounts recorded for income tax purposes. Significant components of the deferred tax assets (liabilities) atMarch 31, 2021 and 2020 are as follows (in thousands): March 31, 2021 2020 Deferred tax assets Intangible assets$ 6,597 $ 6,445 Net operating losses 21,865 9,443 Stock-based compensation 3,623 1,610 Research and development credits 2,790 1,487 Lease liability 698 - Accrued bonuses - 187 Others 214 - Total deferred tax assets 35,787 19,172 Valuation allowance (34,953) (19,129)
Deferred tax assets, net of valuation allowance
$ (42) $ (13) Right-of-use assets (691) - Others (101) (30) Total deferred tax liabilities (834) (43) Total net deferred taxes $ - $ - As ofMarch 31, 2021 , the Company has net operating loss carryforwards in the following jurisdictions:Switzerland of approximately$150.6 million , which will begin to expire as ofMarch 31, 2027 , theUnited Kingdom of approximately$0.6 million , which can be carried forward indefinitely with an annual usage limitation, andthe United States of approximately$10.0 million , which can be carried forward indefinitely with utilization limited to 80% of future taxable income for tax years beginning on or afterJanuary 1, 2021 . The Company has research and development credit carryforwards inthe United States of approximately$2.8 million which will begin to expire in the fiscal year endingMarch 31, 2039 , and approximately$2.2 million is subject to an annual usage limitation. The Company assesses the realizability of the net deferred tax assets at each balance sheet date based on available positive and negative evidence in order to determine the amount which is more likely than not to be realized and record a valuation allowance as necessary. Due to the Company's cumulative loss position which provides significant negative evidence difficult to overcome, the Company has recorded a valuation allowance of$35.0 million and$19.1 million for the years endedMarch 31, 2021 and 2020, respectively, representing the portion of the net deferred tax assets that is not expected to be realized. The amount of the net deferred tax assets considered realizable could be adjusted for future factors that would impact the assessment of the objective and subjective evidence of the Company. The Company will continue to assess the realizability of net deferred tax assets at each balance sheet date in order to determine the proper amount, if any, required for a valuation allowance. As ofMarch 31, 2021 , the Company does not have undistributed earnings from foreign subsidiaries. The Company regularly evaluates whether foreign earnings are expected to be indefinitely reinvested. This evaluation requires judgment about the future operating and liquidity needs of the Company. Changes in economic and business conditions, foreign orU.S. tax laws, or the Company's financial situation could result in a change to the Company's position. The Company is subject to tax and files income tax returns in theUnited Kingdom ,Switzerland , andUnited States federal, state, and local jurisdictions. The Company'sMarch 31, 2021 , 2020 and 2019 tax returns remain open for tax examinations in all applicable income tax jurisdictions. Tax audits and examinations can involve complex issues, interpretations and judgments. The resolution of matters may span multiple years particularly if subject to litigation or negotiation. The Company believes it has appropriately recorded its tax position using reasonable estimates and assumptions, however the potential tax benefits may impact the consolidated results of operations or cash flows in the period of resolution, settlement or when the statutes of limitations expire. There are no unrecognized tax benefits recorded as ofMarch 31, 2021 and 2020. 143 -------------------------------------------------------------------------------- Table of Contents Note 8 - Convertible Notes Payable OnAugust 1, 2019 , the Company issued two convertible promissory notes for an aggregate principal amount of$25.0 million (the "RTW Convertible Promissory Notes") payable to the RTW Entities, investors of the Company. The RTW Convertible Promissory Notes accrued interest at 5% per annum and had a maturity date ofMarch 31, 2020 , the date upon which all unpaid interest and principal would have been due and payable. Prepayment of the RTW Convertible Promissory Notes prior to the maturity date was not permitted without the consent of the note holders of at least a majority of the outstanding principal amount of the convertible promissory notes issued by the Company. OnSeptember 26, 2019 , such consent was obtained and$2.5 million aggregate principal amount of the RTW Convertible Promissory Notes was prepaid and the accrued interest on such principal amount was forgiven, bringing the aggregate principal balance of the RTW Convertible Promissory Notes to$22.5 million . OnSeptember 26, 2019 , the Company issued four convertible promissory notes for an aggregate principal amount of$10.0 million (the "BVF Convertible Promissory Notes") payable to entities affiliated withBiotechnology Value Fund, L.P. ("BVF") under the same terms as the RTW Convertible Promissory Notes. The RSL Convertible Promissory Note (see Note 6), RTW Convertible Promissory Notes and BVF Convertible Promissory Notes (together, the "Convertible Promissory Notes") included various conversion and redemption rights upon merger, certain financing events, change in control or maturity. Immediately prior to the closing of the Business Combination, the$35.0 million of Convertible Promissory Notes were automatically converted into an aggregate of 7,156,495 ISL Shares, which were then exchanged for an aggregate of 3,499,995 shares of the Company's common stock upon the closing of the Business Combination. Accrued interest of$0.6 million on the Convertible Promissory Notes was waived and cancelled immediately prior to the closing of the Business Combination in accordance with the terms of the Convertible Promissory Notes and was recorded within additional paid-in capital on the accompanying consolidated statement of stockholders' equity upon conversion of the underlying notes. Note 9 - Stockholders' Equity Series A Preferred Stock In connection with the closing of the Business Combination, the Company designated and issued 10,000 shares of Series A preferred stock, par value$0.0001 per share, to RSL, all of which shares are outstanding as ofMarch 31, 2021 . The holder(s) of the Series A preferred stock are entitled to cast the number of votes equal to the number of whole shares of common stock into which the shares of Series A preferred stock held by such holder are convertible as of the record date for determining stockholders entitled to vote on such matter, and do not have cumulative voting rights. The holder(s) of a majority of outstanding shares of Series A preferred stock, exclusively and as a separate class, are entitled to elect: (i) four Series A preferred directors, as long as the holder(s) of Series A preferred stock hold 50% or more of the voting power of all then-outstanding shares of capital stock entitled to vote generally at an election of directors, (ii) three Series A preferred directors, as long as the holder(s) of Series A preferred stock hold 40% or more but less than 50% of the voting power of all then-outstanding shares of capital stock entitled to vote generally at an election of directors, and (iii) two Series A preferred directors, as long as the holder(s) of Series A preferred stock hold 25% or more but less than 40% of the voting power of all then-outstanding shares of capital stock entitled to vote generally at an election of directors. Any Series A preferred director so elected may be removed without cause by, and only by, the affirmative vote of the holder(s) of Series A preferred stock given either at a special meeting of the holder(s) of Series A preferred stock duly called for that purpose or pursuant to a written consent of the holder(s) of Series A preferred stock. Each share of Series A preferred stock is convertible at any time at the option of the holder into one share of common stock. On any transfer of shares of Series A preferred stock, whether or not for value, each such transferred share will automatically convert into one share of common stock, except for certain transfers described in the amended and restated certificate of incorporation. Each share of Series A preferred stock will automatically convert into one share of common stock at such time as the holder(s) of Series A preferred stock hold less than 25% of the total voting power of the Company's outstanding shares. The Company shall not, without the consent of the holder(s) of at least a majority of Series A preferred stock, alter or repeal any provisions of the Company's amended and restated certificate of incorporation or bylaws that adversely affect the powers, preferences or rights of the Series A preferred stock. 144
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In the event of the Company's liquidation, dissolution, or winding up, the holder(s) of the Series A preferred stock will receive first an amount per share equal to$0.01 and then will be entitled to share ratably in the assets legally available for distribution to all stockholders.
Preferred Stock
In connection with the closing of the Business Combination, the Company authorized 10,010,000 shares of preferred stock par value$0.0001 per share. The board of directors has the authority, without further action by the stockholders to issue such shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, and to fix the dividend, voting, and other rights, preferences and privileges of the shares. Other than the 10,000 shares of preferred stock designated as Series A preferred stock, there were no issued and outstanding shares of preferred stock as ofMarch 31, 2021 . Common Stock In connection with the closing of the Business Combination, the Company authorized 500,000,000 shares of common stock, par value$0.0001 per share. Each share of common stock has the right to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the board of directors, subject to the prior rights of holders of all classes of stock outstanding having priority rights as to dividends. No dividends have been declared by the board of directors since the Company's inception. Immediately after giving effect to the Business Combination, there were 56,455,376 shares of common stock issued and 54,655,376 shares of common stock outstanding. InApril 2020 , the Company completed an underwritten public offering of 9,613,365 shares of its common stock (including 1,034,483 shares of common stock purchased by RSL and the full exercise of the underwriters' option to purchase 1,253,917 additional shares of common stock) at a price to the public of$14.50 per share, for net proceeds to the Company of approximately$131.0 million , after deducting underwriting discounts and commissions and offering expenses. OnMay 12 andSeptember 17, 2020 , the Company achieved the First Earnout Milestone and the Second Earnout Milestone, respectively, under the Share Exchange Agreement (See Note 3). As a result, the Company issued all of the 20,000,000 Earnout Shares to the Sellers, (including 17,547,938 Earnout Shares issued to RSL) in the six months endedSeptember 30, 2020 . In addition, upon the achievement of the First Earnout Milestone and the Second Earnout Milestone and pursuant to the Sponsor Restricted Stock Agreement, all of the 1,800,000 Sponsor Restricted Shares vested and are no longer subject to forfeiture. InSeptember 2020 , the Company completed an underwritten public offering of 6,060,606 shares of its common stock (including 380,000 shares of common stock purchased by RSL and the full exercise of the underwriters' option to purchase 790,513 additional shares of common stock) at a price to the public of$33.00 per share, for net proceeds to the Company of approximately$188.1 million after deducting underwriting discounts and commissions and offering expenses. InJanuary 2021 , the Company filed a shelf registration statement on Form S-3 with theSEC which permits the offering, issuance and sale by the Company of up to a maximum aggregate offering price of$900 million of its common stock, of which$150 million may be issued and sold pursuant to an at-the-market (ATM) offering program for sales of the Company's common stock under a sales agreement withSVB Leerink LLC , subject to certain conditions as specified in the sales agreement. The Company agreed to paySVB Leerink up to 3% of the gross proceeds sold through the sale agreement. The Company's common stock would be sold at prevailing market prices at the time of the sale and, as a result, prices may vary. The Company has not issued or sold any securities pursuant to the shelf registration statement or ATM offering program. As ofMarch 31, 2021 , the Company had 97,971,243 shares of common stock outstanding, which include the above share issuances during the year, the issuance of shares of common stock against the redemption of warrants as described below and the issuance of shares of common stock from the exercise of stock options and vesting of restricted stock units. See Note 10 - Stock-Based Compensation for additional details about stock options and restricted stock units. 145 -------------------------------------------------------------------------------- Table of Contents The Company has reserved the following shares of common stock for issuance:March 31, 2021 2020 Conversion of Series A preferred stock 10,000
10,000
Stock options outstanding 7,988,999
3,873,888
Restricted stock units outstanding 1,095,676
-
Equity awards available for future grants 1,781,043 5,283,520 Common stock warrants - 5,750,000 Earnout shares - 20,000,000 Total 10,875,718 34,917,408 Common Stock Warrants In connection with HSAC's initial public offering inMay 2019 , HSAC issued 11,500,000 warrants for the purchase of one-half of one share of common stock (an aggregate of 5,750,000 shares) at a price of$11.50 per whole share, subject to adjustment. The warrants were classified as equity. All of the warrants remained outstanding as of and were exercisable commencing onMay 14, 2020 . The warrants were set to expire inDecember 2024 or earlier upon redemption or liquidation. The warrants were redeemable, at the Company's option, in whole and not in part, at a price of$0.01 per warrant, upon a minimum of 30 days' prior written notice of redemption, and if, and only if, the last sale price of the Company's common stock equaled or exceeded$16.50 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends a notice of redemption to the warrant holders. InMay 2020 , the Company delivered a notice of the redemption to the warrant holders, and an aggregate of 11,438,290 outstanding warrants were subsequently exercised for an aggregate of 5,719,145 shares of the Company's common stock at a price of$11.50 per share, for net proceeds of approximately$65.8 million . The remaining 61,710 warrants were cancelled, and the holders thereof paid$0.01 per cancelled warrant. No warrants remain outstanding as ofMarch 31, 2021 . InMay 2019 , the Sponsor purchased from HSAC an aggregate of 10,000,000 warrants (the "private warrants") at$0.50 per private warrant (for a total purchase price of$5.0 million ), with each warrant exercisable for one-half share of common stock at an exercise price of$11.50 per share simultaneously with the closing of HSAC's IPO inMay 2019 . Pursuant to the Share Exchange Agreement, all of the private warrants were cancelled upon the closing of the Business Combination. The Company did not recognize any expense on the cancellation of the private warrants. Note 10 - Stock-Based Compensation 2019 Equity Incentive Plan InDecember 2019 , in connection with the Business Combination, the Company's stockholders approved the 2019 Equity Incentive Plan (the "2019 Plan") and reserved 5,500,000 shares of common stock for issuance thereunder. The 2019 Plan became effective immediately upon the closing of the Business Combination. The number of shares of common stock reserved for issuance under the 2019 Plan will automatically increase onApril 1 of each year, beginning onApril 1, 2020 and continuing throughApril 1, 2029 , by 4.0% of the total number of shares of common stock outstanding on the last day of the preceding month, or a lesser number of shares as may be determined by the board of directors. The maximum number of shares of common stock that may be issued pursuant to the exercise of incentive options under the 2019 Plan is 16,500,000. The Company's employees, directors and consultants are eligible to receive non-qualified and incentive stock options, stock appreciation rights, restricted stock awards, restricted stock unit awards, other stock awards, and performance awards under the plan. Generally, each option will have an exercise price equal to the fair market value of the Company's common stock on the date of grant and a ten-year contractual term. For grants of incentive stock options, if the grantee owns, or is deemed to own, 10% or more of the total voting power of the Company, then the exercise price shall be 110% of the fair market value of the Company's common stock on the date of grant and the option will have a five-year contractual term. Options that are forfeited, cancelled or have expired are available for future grants. OnApril 1, 2020 , the number of common shares reserved for issuance increased automatically by 4.0% (i.e. 2,186,215 shares of common stock) in accordance with the evergreen provision of the 2019 Plan. As ofMarch 31, 2021 , options to purchase 4,777,847 shares of common stock and 1,095,676 restricted stock units were outstanding under the 2019 Plan and 1,781,043 shares remained available for future grant under the 2019 Plan. 146 -------------------------------------------------------------------------------- Table of Contents 2018 Equity Incentive Plan InSeptember 2018 , ISL adopted its 2018 Equity Incentive Plan (the "2018 Plan"), under which 3,667,997 shares of common stock were reserved for grant. InJuly 2019 , the 2018 Plan was amended and restated to increase the number of shares of common stock reserved for grant to 4,768,396. As discussed in Note 3, upon the closing of the Business Combination, the Company assumed all outstanding options, whether or not vested, under the 2018 Plan, with such options henceforth representing the right to purchase a number of shares of the Company's common stock equal to approximately 0.48906624 multiplied by the number of shares of ISL common stock previously represented by such options. For accounting purposes, however, the Company is deemed to have assumed the 2018 Plan. The exchange of the stock options did not result in any incremental compensation expense, since there were no changes to the vesting terms of the awards. As of the effective date of the 2019 Plan, no further stock awards have been or will be made under 2018 Plan. As ofMarch 31, 2021 , 3,211,152 stock options were outstanding under the 2018 Plan. Stock Option Activity A summary of the stock option activity under the Company's equity incentive plans is as follows: Weighted- Weighted average average remaining Aggregate Number of exercise contractual intrinsic value options price term (years) (in thousands)
Balance - March 31, 2020 3,873,888$ 8.33 9.37 $ 28,029 Granted 4,840,668 23.28 Exercised (114,084) 8.57 Forfeited (384,407) 17.14 Cancelled (226,233) 7.86 Expired (833) 24.41 Balance - March 31, 2021 7,988,999$ 16.97 9.04 $ 25,958 Exercisable - March 31, 2021 1,626,473$ 8.86 8.33 $ 11,977 The aggregate intrinsic value is calculated as the difference between the exercise price of all outstanding and exercisable stock options and the fair value of the Company's common stock atMarch 31, 2021 . The intrinsic value of stock options exercised for the year endedMarch 31, 2021 was$3.7 million . There were no stock options exercised during the year endedMarch 31, 2020 . The stock options granted during the years endedMarch 31, 2021 andMarch 31, 2020 had a weighted-average fair value of$16.17 and$5.54 per share, respectively at the grant date. The Company estimated the fair value of each stock option on the date of grant using the Black-Scholes option pricing model applying the weighted-average assumptions in the following table: Years Ended March 31, 2021 2020 Risk-free interest rate 0.30% - 1.14% 0.51% - 2.25% Expected term, in years 5.50 - 6.11 5.75 - 6.11 Expected volatility 78.16% - 84.12% 74.69% - 77.93% Expected dividend yield -% -% Restricted Stock Unit Awards A summary of RSUs activity under the Company's equity incentive plans is as follows: Weighted- Average Grant Date Fair Number of RSUs Value Unvested as of March 31, 2020 - $ - Issued 1,106,626 20.67 Vested (10,000) 44.60 Forfeited (950) 48.85 Outstanding, non-vested as of March 31, 2021 1,095,676$ 20.43 147
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Stock-based Compensation Expense For the years endedMarch 31, 2021 and 2020, stock-based compensation expense under the Company's equity incentive plans was as follows (in thousands): Years Ended March 31, 2021 2020 Research and development expenses$ 6,866 $ 3,125 General and administrative expenses 11,772 3,663 Total stock-based compensation$ 18,638 $ 6,788
As of
Stock-based Compensation Allocated to the Company by RSL In relation to the RSL common share awards and options issued by RSL to employees of RSL, RSI, RSG and the Company, stock-based compensation expense of$0.2 million and$0.2 million was recorded for years endedMarch 31, 2021 and 2020, respectively, in the accompanying consolidated statements of operations. The RSL common share awards are valued at fair value on the date of grant and that fair value is recognized over the requisite service period. Significant judgment and estimates were used to estimate the fair value of these awards, as they are not publicly traded. RSL common share awards are subject to specified vesting schedules and requirements (a mix of time-based and performance-based events). The fair value of each RSL common share award is based on various corporate event-based considerations, including targets for RSL's post-IPO market capitalization and future financing events. The fair value of each RSL option on the date of grant is estimated using the Black-Scholes option-pricing model. Stock-based compensation expense is allocated to the Company over the required service period over which these RSL common share awards and RSL options would vest and is based upon the relative percentage of time utilized by RSL, RSI, and RSG employees on Company matters. RSL RSUs The Company's Principal Executive Officer was granted 25,000 RSUs of RSL during the year endedMarch 31, 2021 . These RSUs have a requisite service period of eight years and have no dividend rights. These RSUs will vest upon the achievement of both a service requirement and liquidity event requirement during the requisite service period. As ofMarch 31, 2021 , the liquidity event condition had not been met and was deemed not probable of being met. For the year endedMarch 31, 2021 , the Company recorded no stock-based compensation expense related to these RSUs. AtMarch 31, 2021 , there was$1.0 million of unrecognized compensation expense related to unvested RSL RSUs. The Company will recognize this stock-based compensation expense upon achievement of the service requirement and liquidity event requirement through the requisite service period. Note 11 - Leases InJune 2020 , the Company entered into two sublease agreements with RSI, for two floors of the building the Company currently occupies as its headquarters inNew York . The subleases will expire onFebruary 27, 2024 andApril 29, 2024 , respectively, and have scheduled rent increases each year. InApril 2020 , the Company entered into a sublease agreement with an unrelated party for one floor of a building inNorth Carolina . The sublease will expire onFebruary 28, 2022 and has no scheduled rent increases. These leases are classified as operating leases. Operating lease ROU assets of$4.2 million and lease liabilities of$4.2 million , were recognized based on the present value of remaining fixed lease payments over the expected lease term using an incremental borrowing rate of 3.9%. As the Company's operating leases do not provide an implicit rate, estimated incremental borrowing rates based on the information available at the time of execution of sublease agreement were used in determining the present value of lease payments. The aggregate weighted-average remaining lease term was 3.0 years as ofMarch 31, 2021 . Variable lease costs such as common area costs and other operating costs are expensed as incurred and were minimal for the year endedMarch 31, 2021 . 148 -------------------------------------------------------------------------------- Table of Contents During the year endedMarch 31, 2021 , the Company incurred$1.1 million in rent expense and paid$0.9 million in cash related to contractual rent obligations under the operating leases. The following table provides a reconciliation of the Company's remaining undiscounted contractual rent obligations due within each respective fiscal year endingMarch 31 to the operating lease liabilities recognized as ofMarch 31, 2021 (in thousands): Years Ending March 31, Operating Leases 2022 $ 1,290 2023 1,152 2024 1,130 2025 47 Total undiscounted payments 3,619 Less: present value adjustment
(202)
Present value of future payments
3,417
Less: current portion of operating lease liabilities
(1,179)
Operating lease liabilities, net of current portion $ 2,238
Note 12 - Commitments and Contingencies Indemnification Agreements The Company is a party to a number of agreements entered into in the ordinary course of business that contain typical provisions that obligate the Company to indemnify the other parties to such agreements upon the occurrence of certain events. The aggregate maximum potential future liability of the Company under such indemnification provisions is uncertain. The Company also indemnifies each of its directors and officers for certain events or occurrences, subject to certain limits. The maximum amount of potential future indemnification is unlimited; however, the Company currently holds director and officer liability insurance.
Litigation
The Company is involved in various lawsuits, claims and other legal matters from time to time that arise in the ordinary course of conducting business. The Company records a liability when a particular contingency is probable and estimable. InFebruary 2021 , a putative securities class action complaint was filed against the Company and certain of its current and former officers in theUnited States District Court for the Eastern District of New York on behalf of a class consisting of thosewho acquired the Company's securities fromOctober 2, 2019 andFebruary 1, 2021 . The complaint alleges that the Company and certain of its officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, by making false and misleading statements regarding the safety of IMVT-1401 and seeks unspecified monetary damages on behalf of the putative class and an award of costs and expenses, including reasonable attorneys' fees. OnApril 20, 2021 , three movants filed motions for appointment as lead plaintiff, one of which was subsequently withdrawn onApril 23, 2021 . No hearing date has been set for the lead plaintiff motions. Following appointment of lead plaintiff, defendants, including the Company, expect the lead plaintiff to file an amended complaint and defendants, including the Company, to file a motion to dismiss the amended complaint. The Company intends to defend the case vigorously and has not recorded a liability related to this lawsuit because, at this time, the Company is unable to reasonably estimate possible losses or determine whether an unfavorable outcome is either probable or remote. Commitments As ofMarch 31, 2021 , the Company did not have any ongoing material contractual obligations for which cash flows are fixed and determinable. The Company expects to enter into other commitments as the business further develops. In the normal course of business, the Company enters into agreements with contract service providers to assist in the performance of its research and development activities. Subject to required notice periods and the Company's obligations under binding purchase orders, the Company can elect to discontinue the work under these agreements at any time. The Company expects to enter into additional collaborative research, contract research, manufacturing, and supplier agreements in the future, which may require upfront payments and long-term commitments of capital resources. Contingencies InMarch 2020 , COVID-19 disease was declared a pandemic by theWorld Health Organization . The COVID-19 pandemic is disrupting supply chains and affecting production and sales across a range of industries. Currently, the Company has not suffered significant adverse consequences as a result of the COVID-19 pandemic, but the extent of the impact of COVID-19 on the Company's future operational and financial performance will depend on certain developments, including the duration and spread of the outbreak, impact on employees and vendors all of which are uncertain and cannot be predicted. At this point, the extent to which COVID-19 may impact the Company's future financial condition or results of operations is uncertain. 149
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