10-Q
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Table of Contents
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM
10-Q
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
 
 
For the quarterly period ended June 30, 2019
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
 
 
 
 
 
 
 
 
For the transition period from
    
    
    
    
to
    
    
    
    
Commission File Number:
001-36274
 
INTRA-CELLULAR THERAPIES, INC.
(Exact name of registrant as specified in its charter)
 
     
Delaware
 
36-4742850
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
     
430 East 29th Street
New York, New York
 
10016
(Address of principal executive offices)
 
(Zip Code)
 
 
 
 
 
 
 
 
 
(646)
440-9333
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
         
Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common Stock
 
ITCI
 
The Nasdaq Global Select Market
 
 
 
 
 
 
 
 
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  
    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  
    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule
 12b-2
of the Exchange Act.
             
Large accelerated filer
 
 
Accelerated filer
 
             
Non-accelerated
 filer
 
 
Smaller reporting company
 
             
 
 
Emerging growth company
 
 
 
 
 
 
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2
of the Exchange Act).    Yes  
    No  
As of August 6, 2019, the registrant had 55,173,222 shares of common stock outstanding.
 
 
 
 
 
 
Table of Contents
 
Intra-Cellular Therapies, Inc.
Index to Form 10-Q
             
   
1
 
             
Item 1.
     
1
 
             
     
1
 
             
     
2
 
             
     
3
 
             
     
4
 
             
     
6
 
             
     
7
 
             
Item 2.
     
18
 
             
Item 3.
     
26
 
             
Item 4.
     
26
 
         
   
27
 
             
Item 1.
     
27
 
             
Item 1A.
     
27
 
             
Item 2.
     
27
 
             
Item 3.
     
27
 
             
Item 4.
     
27
 
             
Item 5.
     
27
 
             
Item 6.
     
27
 
         
   
28
 
 
 
 
 
In this Quarterly Report on Form 10-Q, the terms “we,” “us,” “our,” and the “Company” mean Intra-Cellular Therapies, Inc. and our subsidiaries. “ITI” refers to our wholly-owned subsidiary ITI, Inc. and “ITI Limited” refers to our wholly-owned subsidiary ITI Limited.
 
i
 
 
 
Table of Contents
 
PART I: FINANCIAL INFORMATION
Item 1.
FINANCIAL STATEMENTS
 
 
 
Intra-Cellular Therapies, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
   
June 30,
2019
   
December 31,
2018
 
 
(Unaudited)
   
 
Assets
   
     
 
Current assets:
   
     
 
Cash and cash equivalents
 
$
91,763,368
    $
54,947,502
 
Investment securities,
available-for-sale
   
193,536,800
     
292,583,046
 
Prepaid expenses and other current assets
   
3,041,730
     
7,908,133
 
                 
Total current assets
   
288,341,898
     
355,438,681
 
Property and equipment, net
   
2,082,933
     
1,159,766
 
Right of use assets, net
   
18,822,482
     
 
Deferred tax asset, net
   
529,218
     
529,218
 
Other assets
   
86,083
     
78,833
 
                 
Total assets
 
$
309,862,614
    $
357,206,498
 
                 
Liabilities and stockholders’ equity
   
     
 
Current liabilities:
   
     
 
Accounts payable
 
$
5,632,783
    $
13,961,060
 
Accrued and other current liabilities
   
18,801,485
     
20,044,866
 
Lease liabilities, short-term
   
2,262,977
     
—  
 
Accrued employee benefits
   
5,829,242
     
2,293,259
 
                 
Total current liabilities
   
32,526,487
     
36,299,185
 
Deferred rent
   
     
3,192,432
 
Lease liabilities
   
20,567,765
     
—  
 
                 
Total liabilities
   
53,094,252
     
39,491,617
 
Stockholders’ equity:
   
     
 
Common stock, $.0001 par value: 100,000,000 shares authorized; 55,186,745 and 54,895,295 shares issued and outstanding at June 30, 2019 and December 31, 2018, respectively
   
5,519
     
5,490
 
Additional
paid-in
capital
   
891,183,518
     
880,753,339
 
Accumulated deficit
   
(634,653,119
)
   
(562,376,191
)
Accumulated comprehensive gain/(loss)
   
232,444
     
(667,757
)
                 
Total stockholders’ equity
   
256,768,362
     
317,714,881
 
                 
Total liabilities and stockholders’ equity
 
$
309,862,614
    $
357,206,498
 
                 
 
 
 
 
 
 
 
 
 
See accompanying notes to these condensed consolidated financial statements.
1
 
 
 
 
Table of Contents
 
Intra-Cellular Therapies, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (Unaudited)
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
2019
   
2018
   
2019
   
2018
 
Revenues
 
$
    $
—  
   
$
    $
—  
 
Costs and expenses:
   
   
 
Research and development
   
23,728,464
     
32,439,270
     
48,719,321
     
63,142,268
 
General and administrative
   
15,442,650
     
6,728,987
     
27,147,634
     
13,110,215
 
                                 
Total costs and expenses
   
39,171,114
     
39,168,257
     
75,866,955
     
76,252,483
 
                                 
Loss from operations
   
(39,171,114
)
   
(39,168,257
)    
(75,866,955
)
   
(76,252,483
)
Interest income
   
1,731,550
     
1,793,474
     
3,591,627
     
3,397,622
 
                                 
Loss before provision for income taxes
   
(37,439,564
)
   
(37,374,783
)    
(72,275,328
)
   
(72,854,861
)
Income tax expense
   
1,600
     
1,600
     
1,600
     
1,600
 
                                 
Net loss
 
$
(37,441,164
)
  $
(37,376,383
)  
$
(72,276,928
)
  $
(72,856,461
)
                                 
Net loss per common share:
   
   
 
Basic & Diluted
 
$
(0.68
)
  $
(0.68
)  
$
(1.31
)
  $
(1.33
)
Weighted average number of common shares:
   
   
 
Basic & Diluted
   
55,145,901
     
54,696,698
     
55,129,654
     
54,686,550
 
See accompanying notes to these condensed consolidated financial statements.
2
 
 
 
Table of Contents
 
Intra-Cellular Therapies, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
                                 
 
Three Months Ended June 30,
   
Six Months Ended June 30,
 
 
2019
   
2018
   
2019
   
2018
 
Net loss
 
$
(37,441,164
)
  $
(37,376,383
)  
$
(72,276,928
)
  $
(72,856,461
)
Other comprehensive income/(loss): 
   
     
     
     
 
Unrealized gain/(loss) on investment securities
   
299,894
 
   
210,326
     
900,201
 
   
(230,200
)
                                 
Comprehensive loss
 
$
(37,141,270
)
  $
(37,166,057
)  
$
(71,376,727
)
  $
(73,086,661
)
                                 
 
 
 
 
 
 
 
See accompanying notes to these condensed consolidated financial statements.
3
 
 
 
 
 
Table of Contents
 
Intra-Cellular Therapies, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)
                                                 
 
Common Stock
   
Additional
Paid-in
Capital
   
Accumulated
Deficit
   
Accumulated
Comprehensive
Loss
   
Total
Stockholders’
Equity
 
 
Shares
   
Amount
 
Balance at March 31, 2018
   
54,694,718
    $
  5,469
    $
  867,152,094
    $
 (442,728,858
)   $
 (1,239,750
)   $
  423,188,955
 
Exercise of stock options and issuances of restricted stock
   
3,162
     
1
     
6,129
     
—  
     
—  
     
6,130
 
Stock issued for services
   
2,700
     
—  
     
47,709
     
—  
     
—  
     
47,709
 
Share-based compensation
   
—  
     
—  
     
4,310,705
     
—  
     
—  
     
4,310,705
 
Net loss
   
—  
     
—  
     
—  
     
(37,376,383
)    
—  
     
(37,376,383
)
Other comprehensive income
   
—  
     
—  
     
—  
     
—  
     
210,326
     
210,326
 
                                                 
Balance at June 30, 2018
   
54,700,580
    $
5,470
    $
871,516,637
    $
 (480,105,241
)   $
 (1,029,424
)   $
390,387,442
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
                                                 
 
Common Stock
   
Additional
Paid-in

Capital
   
Accumulated
Deficit
   
Accumulated
Comprehensive
Loss
   
Total
Stockholders’
Equity
   
 
Shares
   
Amount
   
Balance at December 31, 2017
     
54,597,679
    $  
5,460
    $  
862,479,505
    $
(407,248,780
)   $
(799,224
)   $  
454,436,961
 
Exercise of stock options and issuances of restricted stock
   
97,935
     
10
     
343,916
     
—  
     
—  
     
343,926
 
Stock issued for services
   
4,966
     
—  
     
95,408
     
—  
     
—  
     
95,408
 
Share-based compensation
   
—  
     
—  
     
8,597,808
     
—  
     
—  
     
8,597,808
 
Net loss
   
—  
     
—  
     
—  
     
(72,856,461
)    
—  
     
(72,856,461
)
Other comprehensive loss
   
—  
     
—  
     
—  
     
—  
     
(230,200
)    
(230,200
)
                                                 
Balance at June 30, 2018
   
54,700,580
    $
5,470
    $
871,516,637
    $
(480,105,241
)   $
(1,029,424
)   $
390,387,442
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
   
Additional
Paid-in
Capital
   
Accumulated
Deficit
   
Accumulated
Comprehensive
Loss
   
Total
Stockholders’
Equity
 
 
Shares
   
Amount
 
Balance at March 31, 2019
   
55,131,125
   
$
  5,513
   
$
  885,888,318
   
$
(597,211,955
)
 
$
 (67,450
)
 
$
  288,614,426
 
Exercise of stock options and issuances of restricted stock
   
51,878
     
5
     
259,206
     
—  
     
—  
     
259,211
 
Stock issued for services
   
3,742
     
1
     
48,570
     
—  
     
—  
     
48,571
 
Share-based compensation
   
—  
     
—  
     
4,987,424
     
—  
     
—  
     
4,987,424
 
Net loss
   
—  
     
—  
     
—  
     
(37,441,164
)
   
—  
     
(37,441,164
)
Other comprehensive income
   
—  
     
—  
     
—  
     
—  
     
299,894
     
299,894
 
                                                 
Balance at June 30, 2019
   
55,186,745
   
$
5,519
   
$
891,183,518
   
$
 (634,653,119
)
 
$
  232,444
   
$
256,768,362
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
4
 
 
Table of Contents
 
                                                 
 
Common Stock
   
Additional
Paid-in

Capital
   
Accumulated
Deficit
   
Accumulated
Comprehensive
Loss
   
Total
Stockholders’
Equity
   
 
Shares
   
Amount
   
Balance at December 31, 2018
   
54,895,295
   
$
5,490
   
$
880,753,339
   
$
(562,376,191
)
 
$
(667,757
)
 
$
317,714,881
 
Exercise of stock options and issuances of restricted stock
   
283,722
     
28
     
290,419
     
—  
     
—  
     
290,447
 
Stock issued for services
   
7,728
     
1
     
97,119
     
—  
     
—  
     
97,120
 
Share-based compensation
   
—  
     
—  
     
10,042,641
     
—  
     
—  
     
10,042,641
 
Net loss
   
—  
     
—  
     
—  
     
(72,276,928
)
   
—  
     
(72,276,928
)
Other comprehensive income
   
—  
     
—  
     
—  
     
—  
     
900,201
     
900,201
 
                                                 
Balance at June 30, 2019
   
55,186,745
   
$
5,519
   
$
891,183,518
   
$
(634,653,119
)
 
$
232,444
   
$
256,768,362
 
                                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See accompanying notes to these condensed consolidated financial statements.
5
 
 
 
Table of Contents
 
Intra-Cellular Therapies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
Six Months Ended June 30,
 
 
2019
   
2018
 
Cash flows used in operating activities
   
     
 
Net loss
 
$
(72,276,928
)
  $
(72,856,461
)
Adjustments to reconcile net loss to net cash used in operating activities:
   
     
 
Depreciation
   
206,409
     
178,276
 
Share-based compensation
   
10,042,641
     
8,597,808
 
Stock issued for services
   
97,120
     
95,408
 
Amortization of premiums and discounts on investment securities, net
   
(646,583
)
   
(234,256
)
Changes in operating assets and liabilities:
   
     
 
Prepaid expenses and other assets
   
4,737,440
     
(1,015,358
)
Accounts payable
   
(8,328,277
)
   
(794,669
)
Accrued liabilities and other
   
3,230,143
     
5,451,351
 
Deferred rent
   
     
(20,139
)
                 
Net cash used in operating activities
   
(62,938,035
)
   
(60,598,040
)
Cash flows provided by investing activities
   
     
 
Purchases of investments
   
(25,777,875
)
   
(183,657,067
)
Maturities of investments
   
126,370,905
     
276,204,604
 
Purchases of property and equipment
   
(1,129,576
)
   
(316,492
)
                 
Net cash provided by investing activities
   
99,463,454
     
92,231,045
 
Cash flows provided by financing activities
   
     
 
Proceeds from exercise of stock options
   
290,447
     
343,926
 
                 
Net cash provided by financing activities
   
290,447
     
343,926
 
                 
Net increase in cash and cash equivalents
   
36,815,866
     
31,976,931
 
Cash and cash equivalents at beginning of period
   
54,947,502
     
37,790,114
 
                 
Cash and cash equivalents at end of period
 
$
91,763,368
    $
69,767,045
 
                 
Non-cash
investing and financing activities
   
     
 
Right of use assets under operating leases
  $
219,703
    $
—  
 
                 
See accompanying notes to these condensed consolidated financial statements.
 
6
 
 
Table of Contents
 
Intra-Cellular Therapies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
June 30, 2019
1. Organization
Intra-Cellular Therapies, Inc. (the “Company”), through its wholly-owned operating subsidiaries, ITI, Inc. (“ITI”) and ITI Limited, is a biopharmaceutical company focused on the discovery and clinical development of innovative, small molecule drugs that address underserved medical needs in neuropsychiatric and neurological disorders by targeting intracellular signaling mechanisms within the central nervous system (“CNS”). The Company’s lead product candidate, lumateperone, is in Phase 3 clinical development as a novel treatment for schizophrenia and bipolar depression.
The Company was incorporated in the State of Delaware in August 2012 under the name “Oneida Resources Corp.” Prior to a reverse merger that occurred on August 29, 2013 (the “Merger”), Oneida Resources Corp. was a “shell” company registered under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), with no specific business plan or purpose until it began operating the business of ITI, through the Merger transaction on August 29, 2013. The Company was incorporated in Delaware and focuses primarily on the development of novel drugs for the treatment of neuropsychiatric and neurologic diseases and other disorders of the CNS.
In September 2016, the Company licensed certain intellectual property rights to its wholly-owned subsidiary, ITI Limited, which was formed in the third quarter of 2016. Although the license of intellectual property rights did not result in any gain or loss in the consolidated statements of operations, the $125 million of gain related to the transaction helped generate net taxable income for tax purposes in the U.S. and the Company utilized a significant portion of its available federal and state net operating loss carryforwards to offset the majority of this gain. Any taxes incurred related to intercompany transactions were treated as tax expense in the Company’s consolidated statement of operations. In addition to the license, the Company also entered into a research and development agreement with ITI Limited pursuant to which the Company will conduct research and development services related to the license agreement and charge ITI Limited for these services.
In order to further its research projects and support its collaborations, the Company will require additional financing until such time, if ever, that revenue streams are sufficient to generate consistent positive cash flow from operations. The Company currently projects that its cash, cash equivalents and investments will be sufficient to fund operating expenses and capital expenditures for a minimum of
twelve months
​​​​​​​ from the date that this Quarterly Report was filed. Possible sources of funds include public or private sales of the Company’s equity securities, sales of debt securities, the incurrence of debt from commercial lenders, strategic collaborations, licensing a portion or all of the Company’s product candidates and technology and, to a lesser extent, grant funding. 
On September 
2
,
2016
, the Company filed a universal shelf registration statement on Form
S-3,
which was declared effective by the Securities and Exchange Commission (the “SEC”) on September 
14
,
2016
, on which the Company registered for sale up to $
350
 million of any combination of its common stock, preferred stock, debt securities, warrants, rights, purchase contracts and/or units from time to time and at prices and on terms that the Company may determine. After the public offering in
October 2017
, approximately $
178
 million of securities remain available for issuance under this shelf registration statement. This registration statement will remain in effect until September 
14
,
2019
.
In the third quarter of 2018, the Company completed the rolling submission of its New Drug Application (“NDA”) to the U.S. Food and Drug Administration (“FDA”) for lumateperone, a once-daily, oral investigational medicine with a novel mechanism of action for the treatment of schizophrenia. In the fourth quarter of 2018, the FDA accepted for review
 the Company’s NDA and assigned a Prescription Drug User Fee Act, or PDUFA, goal date of September 27, 2019, which has been extended to December 27, 2019
. The NDA submission is supported by data from 20 clinical trials and more than 1,900 subjects exposed to lumateperone. Lumateperone received Fast Track designation from the FDA in November 2017 for the treatment of schizophrenia.
 
 
2. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements of Intra-Cellular Therapies, Inc. and its wholly own subsidiaries have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles set forth in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”). All intercompany accounts and transactions have been eliminated in consolidation. The Company currently operates in one operating segment. Operating segments are defined as components of an enterprise about which separate discrete information is available for the chief operating decision maker, or decision making group, in deciding how to allocate resources and assessing performance. The Company views its operations and manages its business in one segment, which is discovering and developing drugs for the treatment of neurological and psychiatric disorders.
 
7
 
 
Table of Contents
 
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Although actual results could differ from those estimates, management does not believe that such differences would be material.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less from the date of purchase to be cash equivalents. Cash and cash equivalents consist of checking accounts, money market accounts, money market mutual funds, and certificates of deposit with a maturity date of three months or less. The carrying values of cash and cash equivalents approximate the fair market value. Certificates of deposit, commercial paper, corporate notes and corporate bonds with a maturity date of more than three months are classified separately on the balance sheet.
Investment Securities
Investment securities consisted of the following (in thousands):
 
June 30, 2019
 
 
Amortized
Cost
   
Unrealized
Gains
   
Unrealized
(Losses)
   
Estimated
Fair
Value
 
 
(Unaudited)
 
U.S. Government Agency Securities
 
$
72,880
 
 
$
89
 
 
$  
(26
)
 
$
72,943
 
Certificates of Deposit
   
3,000
     
     
     
3,000
 
Commercial Paper
   
22,923
     
11
     
(2
)    
22,932
 
Corporate Notes/Bonds
   
94,501
     
174
     
(13
)    
94,662
 
                                 
  $
193,304
    $
274
    $
(41
)   $
193,537
 
                                 
       
 
December 31, 2018
 
 
Amortized
Cost
   
Unrealized
Gains
   
Unrealized
(Losses)
   
Estimated
Fair
Value
 
U.S. Government Agency Securities
  $
124,691
    $
24
    $
(289
)   $
124,426
 
FDIC Certificates of Deposit (1)
   
245
     
—  
     
—  
     
245
 
Certificates of Deposit
   
1,000
     
—  
     
—  
     
1,000
 
Commercial Paper
   
41,317
     
—  
     
(45
)    
41,272
 
Corporate Notes/Bonds
   
125,998
     
7
     
(365
)    
125,640
 
                                 
  $
293,251
    $
31
    $
(699
)   $
292,583
 
                                 
 
 
(1) “FDIC Certificates of Deposit” consist of deposits that are less than $250,000.
The Company has classified all of its investment securities
available-for-sale,
including those with maturities beyond one year, as current assets on the consolidated balance sheets based on the highly liquid nature of the investment securities and because these investment securities are considered available for use in current operations. As of June 30, 2019 and December 31, 2018, the Company held $12.9 million and $64.6 million, respectively, of
available-for-sale
investment securities with contractual maturity dates more than one year and less than two years.
 
The Company monitors its investment portfolio for impairment quarterly or more frequently if circumstances warrant. In the event that the carrying value of an investment exceeds its fair value and the decline in value is determined to be other-than-temporary, the Company records an impairment charge within earnings attributable to the estimated loss. In determining whether a decline in the value of an investment is other-than-temporary, the Company evaluates currently available factors that may include, among others: (1) general market conditions; (2) the duration and extent to which fair value has been less than the carrying value; (3) the investment issuer’s financial condition and business outlook; and (4) the Company’s assessment as to whether it is more likely than not that the Company will be required to sell a security prior to recovery of its amortized cost basis. As of June 30, 2019, the aggregate related fair value of investments with unrealized losses was
$
71​​​​​​​
 million and the aggregate amount of unrealized losses was approximately
$
41,000​​​​​​​
. Of the $71 million, $
13
 
million has been held in a continuous unrealized loss position for less than 12 months and
$
58
 
million has been held in a continuous loss position for 12 months or longer. The total continuous unrealized loss for investments held for 12 months or longer is approximatel
y $
39,000​​​​​​​
as of June 30, 2019. As of December 31, 2018, the Company had approximately
$
92.1
 
million of investments with a continuous unrealized loss for 12 months or longer of approximately
$
345,000
.
 
 8 
 
 
 
The Company attributes the unrealized gains and losses on the
available-for-sale
securities as of June 30, 2019 and December 31, 2018 to the changes in related market interest rates. The Company does not intend to sell these securities, nor is it more likely than not that the Company will be required to sell them prior to the end of their contractual terms. Furthermore, the Company does not believe that these securities expose the Company to undue market risk or counterparty credit risk. As such, the Company does not consider these securities to be other-than-temporarily impaired.
Fair Value Measurements
The Company applies the fair value method under ASC Topic 820,
Fair Value Measurements and Disclosures
. ASC Topic 820 defines fair value, establishes a fair value hierarchy for assets and liabilities measured at fair value and requires expanded disclosures about fair value measurements. The ASC Topic 820 hierarchy ranks the quality and reliability of inputs, or assumptions, used in the determination of fair value and requires assets and liabilities carried at fair value to be classified and disclosed in one of the following categories based on the lowest level input used that is significant to a particular fair value measurement:
  Level 1—Fair value is determined by using unadjusted quoted prices that are available in active markets for identical assets and liabilities.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Level 2—Fair value is determined by using inputs other than Level 1 quoted prices that are directly or indirectly observable. Inputs can include quoted prices for similar assets and liabilities in active markets or quoted prices for identical assets and liabilities in inactive markets. Related inputs can also include those used in valuation or other pricing models, such as interest rates and yield curves that can be corroborated by observable market data.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Level 3—Fair value is determined by inputs that are unobservable and not corroborated by market data. Use of these inputs involves significant and subjective judgments to be made by a reporting entity—e.g., determining an appropriate adjustment to a discount factor for illiquidity associated with a given security.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The Company evaluates financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level at which to classify them each reporting period. This determination requires the Company to make subjective judgments as to the significance of inputs used in determining fair value and where such inputs lie within the ASC Topic 820 hierarchy.
The Company has no assets or liabilities that were measured using quoted prices for significant unobservable inputs (Level 3 assets and liabilities) as of June 30, 2019 and December 31, 2018. The carrying value of cash held in money market funds of approximately $54.1 million as of June 30, 2019 and $39.6 million as of December 31, 2018 is included in cash and cash equivalents and approximates market value based on quoted market prices (Level 1 inputs). The carrying value of cash held in certificates of deposit of approximately $31.5 million and $7.5 million as of June 30, 2019 and December 31, 2018, respectively, is included in cash and cash equivalents and approximates market value based on quoted market prices (Level 2 inputs).
  
 
 
9
 
 
 
Table of Contents
 
The fair value measurements of the Company’s cash equivalents and
available-for-sale
investment securities are identified in the following tables (in thousands):
                                 
 
   
Fair Value Measurements at
Reporting Date Using
 
 
June 30,
2019
   
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Money Market Funds
  $
54,146
    $
54,146
    $
    $
 
U.S. Government Agency Securities
   
72,943
     
     
72,943
     
 
FDIC Certificates of Deposit
   
     
     
     
 
Certificates of Deposit
   
34,500
     
     
34,500
     
 
Commercial Paper
   
22,932
     
     
22,932
     
 
Corporate Notes/Bonds
   
94,662
     
     
94,662
     
 
                                 
  $
279,183
    $
54,146
    $
225,037
    $
 
                                 
             
 
   
Fair Value Measurements at
Reporting Date Using
 
 
December 31,
2018
   
Quoted Prices
in Active
Markets for
Identical
Assets
(Level 1)
   
Significant
Other
Observable
Inputs
(Level 2)
   
Significant
Unobservable
Inputs
(Level 3)
 
Money Market Funds
  $
39,591
    $
39,591
    $
—  
    $
 —  
 
U.S. Government Agency Securities
   
124,426
     
—  
     
124,426
     
—  
 
FDIC Certificates of Deposit
   
245
     
—  
     
245
     
—  
 
Certificates of Deposit
   
8,500
     
—  
     
8,500
     
—  
 
Commercial Paper
   
41,272
     
—  
     
41,272
     
—  
 
Corporate Notes/Bonds
   
125,640
     
—  
     
125,640
     
—  
 
                                 
  $
339,674
    $
39,591
    $
300,083
    $
 —  
 
                                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Financial Instruments
The Company considers the recorded costs of its financial assets and liabilities, which consist of certain cash equivalents, prepaid expenses, accounts payable
right of use asset, net,
accrued liabilities
 and lease liabilities
, to approximate their fair value because of their relatively short maturities at June 30, 2019 and December 31, 2018. Management believes that the risks associated with its financial instruments are minimal as the counterparties are various corporations, financial institutions and government agencies of high credit standing.
Concentration of Credit Risk
Cash equivalents are held with major financial institutions in the United States. Certificates of deposit, cash and cash equivalents held with banks may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed upon demand and, therefore, bear minimal risk.
Accounts Receivable
Accounts receivable that management has the intent and ability to collect are reported in the balance sheets at outstanding amounts, less an allowance for doubtful accounts. The Company writes off uncollectible receivables when the likelihood of collection is not probable.
The Company evaluates the collectability of accounts receivable on a regular basis. The allowance, if any, is based upon various factors including the financial condition and payment history of customers, an overall review of collections experience on other accounts and economic factors or events expected to affect future collections experience. No allowance was recorded as of June 30, 2019 and December 31, 2018, as the Company has a history of collecting on all its accounts including from government agencies and collaborations funding its research. As of June 30, 2019 and December 31, 2018, the Company did not have accounts receivable.
 
10
 
 
 
 
Table of Contents
 
Property and Equipment
Property and equipment is stated at cost and depreciated on a straight-line basis over estimated useful lives ranging from three to five years. Leasehold improvements are amortized using the straight-line method over the shorter of the estimated useful life of the assets or the term of the related lease. Expenditures for maintenance and repairs are charged to operations as incurred.
When indicators of possible impairment are identified, the Company evaluates the recoverability of the carrying value of its long-lived assets based on the criteria established in ASC Topic 360,
Property, Plant and Equipment
. The Company considers historical performance and anticipated future results in its evaluation of potential impairment. The Company evaluates the carrying value of those assets in relation to the operating performance of the business and undiscounted cash flows expected to result from the use of those assets. Impairment losses are recognized when carrying value exceeds the undiscounted cash flows, in which case management must determine the fair value of the underlying asset. No such impairment losses have been recognized to date.
Research and Development
Except for payments made in advance of services, the Company expenses its research and development costs as incurred. For payments made in advance, the Company recognizes research and development expense as the services are rendered. Research and development costs primarily consist of salaries and related expenses for personnel and resources and the costs of clinical trials. Other research and development expenses include preclinical analytical testing, manufacturing of drug product, outside service providers, materials and consulting fees.
Costs for certain development activities, such as clinical trials, are recognized based on an evaluation of the progress to completion of specific tasks using data such as subject enrollment, clinical site activations or information provided to the Company by its vendors with respect to their actual costs incurred. Payments for these activities are based on the terms of the individual arrangements, which may differ from the pattern of costs incurred, and are reflected in the financial statements as prepaid or accrued research and development expense, as the case may be.
As part of the process of preparing its financial statements, the Company is required to estimate its expenses resulting from its obligations under contracts with vendors, clinical research organizations and consultants and under clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided under such contracts. The Company’s objective is to reflect the appropriate clinical trial expenses in its financial statements by matching those expenses with the period in which services are performed and efforts are expended. The Company accounts for these expenses according to the progress of the clinical trial as measured by subject progression and the timing of various aspects of the trial. The Company determines accrual estimates through financial models taking into account various clinical information provided by vendors and discussion with applicable personnel and external service providers as to the progress toward or state of completion of trials, or the services completed. During the course of a clinical trial, the Company adjusts its clinical expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date based on the facts and circumstances known to it at that time. The Company’s clinical trial accruals are dependent upon the timely and accurate reporting of contract research organizations, clinical sites and other third-party vendors. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in it reporting amounts that are too high or too low for any particular period. For the three and six months ended June 30, 2019 and 2018, there were no material adjustments to the Company’s prior period estimates of accrued expenses for clinical trials.
Income Taxes
Income taxes are accounted for using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the year in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established when necessary to reduce net deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. The Company accounts for uncertain tax positions pursuant to ASC Topic 740. Financial statement recognition of a tax position taken or expected to be taken in a tax return is determined based on a
more-likely-than-not
threshold of that position being sustained. If the tax position meets this threshold, the benefit to be recognized is measured as the tax benefit having the highest likelihood of being realized upon ultimate settlement with the taxing authority. The Company recognizes interest accrued related to unrecognized tax benefits and penalties in the provision for income taxes. 
 
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On December 22, 2017, President Trump signed into law the “Tax Cuts and Jobs Act” (“TCJA”) that significantly reforms the Internal Revenue Code of 1986, as amended (the “Code”). The TCJA, among other things, includes changes to U.S. federal tax rates, imposes significant additional limitations on the deductibility of interest and net operating loss carryforwards, allows for the expensing of capital expenditures, and puts into effect the migration from a “worldwide” system of taxation to a territorial system. In addition, the TCJA repealed the alternative minimum tax (“AMT”) and provides for a refund of taxes paid between 2018 and 2021. With the passing of the TCJA, the Company will receive refunds in future periods for AMT paid in prior years. The Company therefore recognized a benefit of approximately $1.1 million for these taxes for the year ended December 31, 2017. 
As of June 30, 2019 and December 31, 2018, approximately $529,000 is classified as current within prepaid expenses and other current assets and approximately $529,000 is classified as long term within deferred tax assets, net.
The Company’s effective tax rate for the six months ended June 30, 2019 and 2018 was approximately 0% for both periods, respectively. The Company’s annual effective tax rate of approximately 0% is substantially lower than the U.S. statutory rate of 21% due to valuation allowances recorded on current year losses where the Company is not at more-likely than not to recognize a future tax benefit.
Comprehensive Income (Loss)
All components of comprehensive income (loss), including net income (loss), are reported in the financial statements in the period in which they are incurred. Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from
non-owner
sources. In accordance with accounting guidance, the Company presents the impact of any unrealized gains or (losses) on its investment securities in a separate statement of comprehensive income (loss) for each period.
Share-Based Compensation
Share-based payments are accounted for in accordance with the provisions of ASC Topic 718,
Compensation—Stock Compensation
. The fair value of share-based payments is estimated, on the date of grant, using the Black-Scholes-Merton option-pricing model (the “Black-Scholes model”). The resulting fair value is recognized ratably over the requisite service period, which is generally the vesting period of the option.
For all awards granted with time based vesting conditions, expense is amortized using the straight-line attribution method. Share-based compensation expense recognized in the statements of operations for the three and six months ended June 30, 2019 and 2018 is based on share-based awards ultimately expected to vest.
The Company utilizes the Black-Scholes model for estimating fair value of its stock options granted. Option valuation models, including the Black-Scholes model, require the input of subjective assumptions, and changes in the assumptions used can materially affect the grant date fair value of an award. These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility and the expected life of the award.
Expected volatility rates are based on a combination of the historical volatility of the common stock of comparable publicly traded entities and the historical information about the Company’s common stock. The expected life of stock options is the period of time for which the stock options are expected to be outstanding. Given the limited historical exercise data, the expected life is determined using the “simplified method,” which defines expected life as the midpoint between the vesting date and the end of the contractual term.
The risk-free interest rates are based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The Company has not paid dividends to its stockholders since its inception and does not plan to pay cash dividends in the foreseeable future. Therefore, the Company has assumed an expected dividend rate of zero. For stock options granted, the exercise price was determined by using the closing market price of the Company’s common stock on the date of grant. The Company recognizes the effect of forfeitures when they occur.
A restricted stock unit (“RSU”) is a stock-based award that entitles the holder to receive shares of the Company’s common stock as the award vests. The fair value of each RSU is based on the fair market value of the Company’s common stock on the date of grant. The Company has granted RSUs that vest in three equal annual installments provided that the employee remains employed with the Company on the applicable vesting date.
In the first quarter of each fiscal year beginning in 2016, the Company granted time based RSUs that vest in three equal annual installments. In the first quarter of 2017, the Company granted performance-based RSUs, which vest based on the achievement of certain milestones that include (i) the submission of a new drug application (“NDA”) with the U.S. Food and Drug Administration (the
 
“FDA”), (ii) the approval of the NDA by the FDA (together, the “Milestone RSUs”) and (iii) the achievement of certain comparative
 
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shareholder returns against the Company’s peers (the “TSR RSUs”). The Milestone RSUs were valued at the closing price on March 8, 2017. The Milestone RSUs related to the NDA submission have been fully amortized through December 31, 2018. The NDA submission milestone was achieved in the third quarter of 2018, so the Milestone RSUs related to the NDA submission vested on December 31, 2018. The amortization of the expenses for RSUs related to the approval of the NDA will commence if and when the NDA submission has been approved through the last day of the calendar year in which the milestone is achieved 
and expires on December 31, 2019 if not achieved
. The TSR RSUs were valued using the Monte Carlo Simulation method and will be amortized over the life of the RSU agreements which ends December 
31
,
2019
. The Milestone RSUs and TSR RSUs are target based and the ultimate awards, if attained, could be the target amount or higher or lower than the target amount, depending on the timing or achievement of the goal.
Under ASC Topic 718, the cumulative amount of compensation cost recognized for instruments classified as equity that ordinarily would result in a future tax deduction under existing tax law shall be considered to be a deductible difference in applying ASC Topic 740,
Income Taxes
. The deductible temporary difference is based on the compensation cost recognized for financial reporting purposes; however, these provisions currently do not impact the Company, as all the deferred tax assets have a full valuation allowance.
Since the Company had net operating loss carryforwards as of June 30, 2019 and 2018, no excess tax benefits for the tax deductions related to share-based awards were recognized in the statements of operations.
Loss Per Share
Basic net loss per common share is determined by dividing the net loss by the weighted-average number of common shares outstanding during the period, without consideration of common stock equivalents. Diluted net loss per share is computed by dividing the net loss by the weighted-average number of common stock equivalents outstanding for the period. The treasury stock method is used to determine the dilutive effect of the Company’s stock option grants and RSUs.
The following common stock equivalents were excluded in the calculation of diluted loss per share because their effect would be anti-dilutive as applied to the loss from operations for the three and six months ended June 30, 2019 and 2018:
                                 
 
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
 
2019
   
2018
   
2019
   
2018
 
Stock options
   
355,963
     
797,638
     
355,963
     
797,560
 
RSUs
   
520,822
     
353,672
     
497,682
     
347,373
 
TSR RSUs
   
104,481
     
67,924
     
104,481
     
67,924
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Recently Issued Accounting Standards
In May 2014, the FASB issued ASC Update No.
 2014-09,
Revenue from Contracts with Customers (Topic 606), which has been subsequently updated (as updated, “ASC Topic 606”). The purpose of ASC Topic 606 is to provide enhancements to the quality and consistency of how revenue is reported while also improving comparability in the financial statements of companies using GAAP and International Financial Reporting Standards. The core principle requires entities to recognize revenue in a manner that depicts the transfer of goods or services to customers in amounts that reflect the consideration to which an entity expects to be entitled in exchange for those goods or services. ASC Topic 606 became effective for annual periods beginning after December 15, 2017.
The Company adopted this standard using the “modified retrospective method,” which did not result in an impact to its financial statements as the Company has not had product sales to date. Upon commercializing a product or executing any revenue generating contracts, the Company will provide additional disclosures in the notes to the consolidated financial statements related to the relevant aspects of any revenue generating contracts that the Company has or into which the Company expects to enter.
In February 2016, the FASB issued ASU No.
 2016-02,
Leases (“ASU
2016-02”).
ASU
2016-02
requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. ASU
2016-02
is effective for annual reporting periods beginning after December 15, 2018 and early adoption is permitted. The Company adopted the standard on January 1, 2019 using the simplified transition method, allowing the Company to not restate comparative periods and apply ASC 842 on a prospective basis, resulting in a balance sheet presentation that is not comparable to the prior period in the first year of adoption. The Company elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Company to carry forward the historical lease classification. The Company has not elected the hindsight practical expedient. The Company made an accounting policy election to keep leases with an initial term of 12 months or less off the balance sheet. The Company recognizes those lease payments in the consolidated statements of operations on a straight-line basis over the lease term.
 
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The adoption of the standard resulted in recognition of additional net lease assets and lease liabilities of approximately $20.2 million and $23.4 million, respectively, as of January 1, 2019. The difference between these amounts represents the net deferred rent as of January 1, 2019 with no impact on the accumulated deficit. The adoption of the new lease standard was a
non-cash
transaction. The Company concluded the new standard did not have a material impact on its liquidity and income tax position.
In February 2018, the FASB issued ASU
2018-02,
Income Statement-Reporting Comprehensive Income (Topic 220)—Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, to address a specific consequence of the TCJA by allowing a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA’s reduction of the U.S. federal corporate income tax rate. ASU
2018-02
is effective for all entities for fiscal years beginning after December 15, 2018, with early adoption permitted, and is to be applied either in the period of adoption or retrospectively to each period in which the effect of the change in the U.S. federal corporate income tax rate in the TCJA is recognized. The Company does not have any stranded tax effects to which this ASU would apply. Therefore, there is no impact to the Company’s consolidated financial statements.
In August 2018, the SEC issued a final rule Release No.
 33-10532,
“Disclosure Update and Simplification,” to amend certain disclosure requirements now seen as redundant, duplicative, overlapping, outdated or superseded in wake of recent accounting pronouncements. The amended rules became effective November 5, 2018. We analyzed the release in preparation of this Form
10-Q,
which resulted in the additional disclosure of changes to stockholders’ equity during interim periods, as presented within this Form
10-Q
within the condensed consolidated statements of stockholders’ equity. We note that many of the amended requirements under this Release are not applicable to the Company, as we do not make dividend payments to stockholders, currently report our activities under a single business segment, and already provided all other significant disclosure requirements.
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” (ASU 2016-13) This guidance applies to all entities and impacts how entities account for credit losses for most financial assets and other instruments. For available-for-sale debt securities, entities will be required to recognize an allowance for credit losses rather than a reduction to the carrying value of the asset. For trade receivables, loans and held-to-maturity debt securities, entities will be required to estimate lifetime expected credit losses. This guidance is effective for fiscal years beginning after December 15, 2019 and interim periods therein. Early adoption is permitted for annual periods beginning after December 15, 2018 and interim periods therein. We are currently analyzing the impact of ASU 2016-13 on the condensed consolidated financial statements.
3. Property and Equipment
Property and equipment consist of the following:
                 
 
June 30,
2019
   
December 31,
2018
 
Computer equipment
 
$
60,377
    $
44,427
 
Furniture and fixtures
   
402,800
     
341,582
 
Scientific equipment
   
3,831,304
     
3,658,209
 
Leasehold improvements
   
1,026,170
     
149,470
 
                 
   
5,320,651
     
4,193,688
 
Less accumulated depreciation
   
(3,237,718
)
   
(3,033,922
)
                 
 
$
2,082,933
    $
1,159,766
 
                 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation expense for the six months ended June 30, 2019 and 2018 was $206,409 and $178,276, respectively.
 
4. Right Of Use Assets and Lease Liabilities
In 2014, the Company entered into a long-term lease with a related party which, as amended, provided for a lease of 16,753 square feet of useable laboratory and office space located at 430 East 29th Street, New York, New York 10016. A member of the Company’s board of directors is the Executive Chairman of the parent company to the landlord under this lease. Concurrent with this lease, the Company entered into a license agreement to occupy certain vivarium related space in the same facility for the same term and rent escalation provisions as the lease. This license has the primary characteristics of a lease and is characterized as a lease in accordance with ASU 2016-02 
for accounting purposes. In
September 2018
, the Company further amended the lease to obtain an additional
 
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15,534 square feet of office space beginning October 1, 2018 and to extend the term of the lease for previously acquired space. The lease, as amended, has a term of 14.3 years ending in May 2029. The Company expects that its facility related costs will increase significantly as a result of leasing this additional space. In February 2019, the Company entered into a long-term lease for 3,164 square feet of office space in Towson, Maryland beginning March 1, 2019. The lease has a term of 3.2 years ending in April 2022 and includes a limited rent abatement and escalation provisions. The Company has no other significant leases. In addition, no identified leases require allocations between lease and
non-lease components.
 
In adopting ASU
2016-02
as of January 1, 2019, the Company elected the package of practical expedients, which permit the Company not to reassess under the new standard the historical lease classification. The Company has not elected the hindsight practical expedient. The Company made an accounting policy election to keep leases with an initial term of 12 months or less off of the balance sheet. The Company also elected the lessee component election, allowing the Company to account for the lease and non-lease components as a single lease component. In determining whether a contract contains a lease, asset and service agreements are assessed at onset and upon modification for criteria of specifically identified assets, control and economic benefit. The Company recognized those lease payments in the consolidated statements of operations on a straight-line basis over the lease term. The Company uses the rate implicit in the contract whenever possible when determining the applicable discount rate. As the majority of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. On the lease commencement dates, the Company estimated the lease liabilities and the right of use assets at present value using its applicable incremental borrowing rates of its two long term leases of 7.21% for the Company’s Maryland lease of 3.2
years
 
and
9.1
%
 
for
 the Company’s 
New
 
York leases of
14.3
years. On January 
1
,
2019
, upon adoption of ASU
2016-02,
the Company recorded right of use assets of approximately $
20.2
 million, lease liabilities of $
23.4
million and eliminated deferred rent of $
3.2
 million.
Right of use assets and lease liabilities for operating leases were $18.8 million and $22.8 million as of June 30, 2019, respectively.
Maturity analysis under the lease agreements are as follows:
Six months December 31, 2019
  $
754,321
 
Year ended December 31, 2020
   
3,346,376
 
Year ended December 31, 2021
   
3,448,323
 
Year ended December 31, 2022
   
3,491,166
 
Year ended December 31, 2023
   
3,566,466
 
Thereafter
   
21,302,235
 
         
Total
   
35,908,887
 
Less: Present value discount
   
(13,078,145
)
         
Total Lease liability
  $
22,830,742
 
         
Less: current portion
   
(2,262,977
)
         
Long-term lease liabilities
  $
20,567,765
 
         
Lease expense for the three and six months ended June 30, 2019 was approximately $1.8 million and $956,000, respectively, as compared to approximately $360,000 and $719,000 for the three and six month period ended June 30, 2018.
5. Share-Based Compensation
On June 18, 2018, the Company’s stockholders approved the 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan provides for the granting of stock-based awards, such as stock options, restricted common stock, RSUs and stock appreciation rights to employees, directors and consultants as determined by the Board of Directors. The 2018 Plan replaced the Company’s Amended and Restated 2013 Equity Incentive Plan (the “2013 Plan”). The Company will grant no further stock options or other awards under the 2013 Plan. Any options or other awards outstanding under the 2013 Plan remain outstanding in accordance with their terms and the terms of the 2013 Plan. As of December 31, 2018, the total number of shares reserved under all equity plans was 10,287,390 and the Company had 4,807,323 shares available for future issuance under the 2018 Plan. Stock options granted under the 2018 Plan may be either incentive stock options (“ISOs”) as defined by the Code, or
non-qualified
stock options. The Board of Directors determines who will receive options, the vesting periods (which are generally one to three years) and the exercise prices of such options. Options have a maximum term of 10 years. The exercise price of ISOs granted under the 2018 Plan must be at least equal to the fair market value of the common stock on the date of grant. 
 
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Total stock-based compensation expense related to all of the Company’s share-based awards, including stock options and RSUs to employees, directors and consultants, recognized during the three and six months ended June 30, 2019 and 2018, was comprised of the following: