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 September 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 November 4, 2019, the registrant had 55,261,027 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
 
 
 
 
 
 
 
 
 
 
 
5
 
 
 
 
 
 
 
 
 
 
 
6
 
 
 
 
 
 
 
 
Item 2.
 
 
 
17
 
 
 
 
 
 
 
 
Item 3.
 
 
 
25
 
 
 
 
 
 
 
 
Item 4.
 
 
 
25
 
 
 
 
 
 
 
 
26
 
 
 
 
 
 
 
 
Item 1.
 
 
 
26
 
 
 
 
 
 
 
 
Item 1A.
 
 
 
26
 
 
 
 
 
 
 
 
Item 2.
 
 
 
26
 
 
 
 
 
 
 
 
Item 3.
 
 
 
26
 
 
 
 
 
 
 
 
Item 4.
 
 
 
26
 
 
 
 
 
 
 
 
Item 5.
 
 
 
26
 
 
 
 
 
 
 
 
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
 
September 30,
2019
 
 
December 31,
2018
 
 
(Unaudited)
 
 
 
Assets
 
 
 
 
 
 
Current assets:
   
     
 
Cash and cash equivalents
 
$
102,162,982
 
  $
54,947,502
 
Investment securities,
available-for-sale
 
 
153,270,596
 
   
292,583,046
 
Prepaid expenses and other current assets
 
 
4,023,348
 
   
7,908,133
 
                 
Total current assets
 
 
259,456,926
 
   
355,438,681
 
Property and equipment, net
 
 
2,174,993
 
   
1,159,766
 
Right of use assets, net
 
 
18,540,418
 
   
—  
 
Deferred tax asset, net
 
 
264,609
 
   
529,218
 
Other assets
 
 
86,084
 
   
78,833
 
                 
Total assets
 
$
280,523,030
 
  $
357,206,498
 
                 
Liabilities and stockholders’ equity
 
 
 
 
 
 
Current liabilities:
 
 
 
   
 
Accounts payable
 
$
6,230,923
 
  $
13,961,060
 
Accrued and other current liabilities
 
 
17,323,632
 
   
20,044,866
 
Lease liabilities, short-term
 
 
2,286,885
 
   
—  
 
Accrued employee benefits
 
 
7,531,659
 
   
2,293,259
 
                 
Total current liabilities
 
 
33,373,099
 
   
36,299,185
 
Deferred rent
 
 
—  
 
   
3,192,432
 
Lease liabilities
 
 
20,269,646
 
   
—  
 
                 
Total liabilities
 
 
53,642,745
 
   
39,491,617
 
Stockholders’ equity:
 
 
 
   
 
Common stock, $0.0001 par value: 100,000,000 shares authorized; 55,247,579 and 54,895,295 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively
 
 
5,525
 
   
5,490
 
Additional
paid-in
capital
 
 
896,191,230
 
   
880,753,339
 
Accumulated deficit
 
 
(669,515,518
)
   
(562,376,191
)
Accumulated comprehensive gain/(loss)
 
 
199,048
 
   
(667,757
)
                 
Total stockholders’ equity
 
 
226,880,285
 
   
317,714,881
 
                 
Total liabilities and stockholders’ equity
 
$
280,523,030
 
  $
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 September 30,
   
Nine Months Ended September 30,
 
 
2019
 
 
2018
   
2019
 
 
2018
 
Revenues
 
$
—  
 
  $
—  
   
$
—  
 
  $
—  
 
Costs and expenses:
 
 
 
 
 
Research and development
 
 
21,339,792
 
   
35,419,016
   
 
70,059,113
 
   
98,561,284
 
General and administrative
 
 
15,036,444
 
   
7,972,329
   
 
42,184,078
 
   
21,082,544
 
                                 
Total costs and expenses
 
 
36,376,236
 
   
43,391,345
   
 
112,243,191
 
   
119,643,828
 
                                 
Loss from operations
 
 
(36,376,236
)
   
(43,391,345
)  
 
(112,243,191
)
   
(119,643,828
)
Interest income
 
 
1,513,837
 
   
1,868,431
   
 
5,105,464
 
   
5,266,053
 
                                 
Loss before provision for income taxes
 
 
(34,862,399
)
   
(41,522,914
)  
 
(107,137,727
)
   
(114,377,775
)
Income tax expense
 
 
—  
 
   
—  
   
 
1,600
 
   
1,600
 
                                 
Net loss
 
$
(34,862,399
)
  $
(41,522,914
)  
$
(107,139,327
)
  $
(114,379,375
)
                                 
Net loss per common share:
 
 
 
 
 
Basic & Diluted
 
$
(0.63
)
  $
(0.76
)  
$
(1.94
)
  $
(2.09
)
Weighted average number of common shares:
 
 
 
 
 
Basic & Diluted
 
 
55,207,400
 
   
54,708,065
   
 
55,155,854
 
   
54,693,827
 
 
 
 
 
 
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 September 30,
   
Nine Months Ended September 30,
 
 
2019
 
 
2018
   
2019
 
 
2018
 
Net loss
 
$
(34,862,399
)
  $
(41,522,914
)  
$
(107,139,327
)
  $
(114,379,375
)
Other comprehensive income/(loss):
 
 
 
   
   
 
 
   
 
Unrealized (loss)
/
gain
 on investment securities
 
 
(33,396
)
   
183,239
   
 
866,805
 
   
(46,961
)
                                 
Comprehensive loss
 
$
(34,895,795
)
  $
(41,339,675
)  
$
(106,272,522
)
  $
(114,426,336
)
                                 
 
 
 
 
 
 
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
Gain (
Loss
)
 
 
Total
Stockholders’
Equity
 
 
Shares
 
 
Amount
 
Balance at June 30, 2018
   
54,700,580
    $
5,470
    $
871,516,637
    $
(480,105,241
)   $
(1,029,424
)   $
390,387,442
 
Exercise of stock options and issuances of restricted stock
   
9,192
     
 
  
     
144,416
     
 
  
     
 
  
     
144,416
 
Stock issued for services
   
2,237
     
1
     
48,542
     
 
  
     
 
  
     
48,543
 
Share-based compensation
   
 
  
     
 
  
     
4,373,688
     
 
  
     
 
  
     
4,373,688
 
Exercise of stock
warrant
   
1,822
     
 
  
     
10,982
     
 
  
     
 
  
     
10,982
 
Net loss
   
 
  
     
 
  
     
 
  
     
(41,522,914
)    
 
  
     
(41,522,914
)
Other comprehensive income
   
 
  
     
 
  
     
 
  
     
 
  
     
183,239
     
183,239
 
                                                 
Balance at September 30, 2018
   
54,713,831
    $
5,471
    $
876,094,265
    $
(521,628,155
)   $
(846,185
)   $
353,625,396
 
                                                 
                               
 
Common Stock
   
Additional
Paid-in
Capital
 
 
Accumulated
Deficit
 
 
Accumulated
Comprehensive
Gain (
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
   
107,127
     
10
     
488,332
     
 
  
     
 
  
     
488,342
 
Stock issued for services
   
7,203
     
1
     
143,950
     
 
  
     
 
  
     
143,951
 
Share-based compensation
   
 
  
     
 
  
     
12,971,496
     
 
  
     
 
  
     
12,971,496
 
Exercise of stock
warrant
   
1,822
     
 
  
     
10,982
     
 
  
     
 
  
     
10,982
 
Net loss
   
 
  
     
 
  
     
 
  
     
(114,379,375
)    
 
  
     
(114,379,375
)
Other comprehensive loss
   
 
  
     
 
  
     
 
  
     
 
  
     
(46,961
)    
(46,961
)
                                                 
Balance at September 30, 2018
   
54,713,831
    $
5,471
    $
876,094,265
    $
(521,628,155
)   $
(846,185
)   $
353,625,396
 
                                                 
                               
 
Common Stock
   
Additional
Paid-in
Capital
 
 
Accumulated
Deficit
 
 
Accumulated
Comprehensive
Gain (
Loss
)
 
 
Total
Stockholders’
Equity
 
 
Shares
 
 
Amount
 
Balance at June 30, 2019
 
 
55,186,745
 
 
$
5,519
 
 
$
891,183,518
 
 
$
(634,653,119
)
 
$
  232,444
 
 
$
256,768,362
 
Exercise of stock options and issuances of restricted stock
 
 
54,332
 
 
 
6
 
 
 
152,373
 
 
 
 
  
 
 
 
 
  
 
 
 
152,379
 
Stock issued for services
 
 
6,502
 
 
 
 
  
 
 
 
48,571
 
 
 
 
  
 
 
 
 
  
 
 
 
48,571
 
Share-based compensation
 
 
 
  
 
 
 
 
  
 
 
 
4,806,768
 
 
 
 
  
 
 
 
 
  
 
 
 
4,806,768
 
Net loss
 
 
 
  
 
 
 
 
  
 
 
 
 
  
 
 
 
(34,862,399
)
 
 
 
  
 
 
 
(34,862,399
)
Other comprehensive loss
 
 
 
  
 
 
 
 
  
 
 
 
 
  
 
 
 
 
  
 
 
 
(33,396
)
 
 
(33,396
)
                                                 
Balance at September 30, 2019
 
 
55,247,579
 
 
$
5,525
 
 
$
896,191,230
 
 
$
(669,515,518
)
 
$
  199,048
 
 
$
226,880,285
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
Additional
 
 
 
 
 
 
Accumulated
 
 
Total
 
 
 
 
Shares
 
 
Amount
 
 
Paid-in
Capital
 
 
Accumulated
Deficit
 
 
Comprehensive
Gain (Loss)
 
 
Stockholders’
Equity
 
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
 
 
338,054
 
 
 
34
 
 
 
442,792
 
 
 
 
  
 
 
 
 
  
 
 
 
442,826
 
Stock issued for services
 
 
14,230
 
 
 
1
 
 
 
145,690
 
 
 
 
  
 
 
 
 
  
 
 
 
145,691
 
Share-based compensation
 
 
 
  
 
 
 
 
  
 
 
 
14,849,409
 
 
 
 
  
 
 
 
 
  
 
 
 
14,849,409
 
Net loss
 
 
 
  
 
 
 
 
  
 
 
 
 
  
 
 
 
(107,139,327
)
 
 
 
  
 
 
 
(107,139,327
)
Other comprehensive income
 
 
 
  
 
 
 
 
  
 
 
 
 
  
 
 
 
 
  
 
 
 
866,805
 
 
 
866,805
 
                                                 
Balance at September 30, 2019
 
 
55,247,579
 
 
$
  5,525
 
 
$
  896,191,230
 
 
$
(669,515,518
)
 
$
199,048
 
 
$
  226,880,285
 
See accompanying notes to these condensed consolidated financial statements.
 
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Table of Contents
Intra-Cellular Therapies, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Unaudited)
                 
 
Nine Months Ended September 30,
 
 
2019
 
 
2018
 
Cash flows used in operating activities
 
 
 
 
 
 
Net loss
 
$
(107,139,327
)
  $
(114,379,375
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
   
 
Depreciation
 
 
335,461
 
   
273,206
 
Share-based compensation
 
 
14,849,409
 
   
12,971,496
 
Stock issued for services
 
 
145,691
 
   
143,951
 
Amortization of premiums and discounts on investment securities, net
 
 
(871,412
)
   
(544,716
)
Changes in operating assets and liabilities:
 
 
 
   
 
Prepaid expenses and other assets
 
 
4,020,430
 
   
(2,384,203
)
Accounts payable
 
 
(7,730,137
)
   
4,279,647
 
Accrued liabilities and other
 
 
3,462,560
 
   
10,688,036
 
Deferred rent
 
 
—  
 
   
(55,619
)
                 
Net cash used in operating activities
 
 
(92,927,325
)
   
(89,007,577
)
Cash flows provided by investing activities
 
 
 
 
 
 
Purchases of investments
 
 
(58,332,886
)
   
(241,114,631
)
Maturities of investments
 
 
199,383,553
 
   
361,942,241
 
Purchases of property and equipment
 
 
(1,350,688
)
   
(332,515
)
                 
Net cash provided by investing activities
 
 
139,699,979
 
   
120,495,095
 
Cash flows provided by financing activities
 
 
 
 
 
 
Proceeds from exercise of stock options
 
 
442,826
 
   
488,342
 
Proceeds from
exercise of
 
warrants
 
 
—  
 
   
10,982
 
                 
Net cash provided by financing activities
 
 
442,826
 
   
499,324
 
                 
Net increase in cash and cash equivalents
 
 
47,215,480
 
   
31,986,842
 
Cash and cash equivalents at beginning of period
 
 
54,947,502
 
   
37,790,114
 
                 
Cash and cash equivalents at end of period
 
$
102,162,982
 
  $
69,776,956
 
                 
Non-cash
investing and financing activities
 
 
 
 
 
 
Right of use assets under operating leases
 
$
219,703
 
  $
—  
 
                 
 
 
 
 
 
 
 
See accompanying notes to these condensed consolidated financial statements.
 
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Table of Contents
Intra-Cellular Therapies, Inc.
Notes to Condensed Consolidated Financial Statements (Unaudited)
September 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 primarily in neuropsychiatric and neurological disorders by targeting intracellular signaling mechanisms within the central nervous system (“CNS”). The Company’s lead product candidate, lumateperone, is under review by the U.S. Food and Drug Administration (“FDA”) for the treatment of schizophrenia and in
Phase 3 clinical development as a novel treatment for 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
August
 
30
, 201
9
, 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 1
2
, 201
9
, on which the Company registered for sale up to $350 million of any combination of its common stock, preferred stock, debt securities, warrants, rights
 
and/or units from time to time and at prices and on terms that the Company may determine
which includes
up to $75 
million of common stock that the Company may issue and sell from time to time, through SVB Leerink LLC acting as its sales agent, pursuant to the sale agreement that the Company entered into with SVB Leerink on August 29, 2019 for the Company’s
“at-the-market”
equity program
.
In the third quarter of 2018, the Company completed the rolling submission of its New Drug Application (“NDA”) to the 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.
 
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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):
                                 
 
September 30, 2019
 
 
Amortized
Cost
 
 
Unrealized
Gains
 
 
Unrealized
(Losses)
 
 
Estimated
Fair
Value
 
 
(Unaudited)
 
U.S. Government Agency Securities
  $
55,402
    $
70
    $
(13
)   $
55,459
 
Certificates of Deposit
   
3,000
     
—  
     
—  
     
3,000
 
Commercial Paper
   
33,705
     
16
     
(6
)    
33,715
 
Corporate Notes/Bonds
   
60,965
     
135
     
(3
)    
61,097
 
                                 
  $
153,072
    $
221
    $
(22
)   $
153,271
 
                                 
       
 
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 September 30, 2019 and December 31, 2018, the Company held $10.0 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 September 30, 2019, the aggregate related fair value of investments with unrealized losses was $36 million and the aggregate amount of unrealized losses was approximately $22,000. Of the $36 million, $10 million has been held in a continuous unrealized loss position for less than 12 months
 
and $26 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 approximately $16,000 as of September 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.
 
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The Company attributes the unrealized gains and losses on the
available-for-sale
securities as of September 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 September 30, 2019 and December 31, 2018. The carrying value of cash held in money market funds of approximately $55.4 million as of September 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 $39.0 million and $7.5 million as of September 30, 2019 and December 31, 2018, respectively,
 
is included in cash and cash equivalents and approximates market value based due to their short term maturities.
 
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The fair value measurements of the Company’s
c
ash eq
u
ivalents and
available-for-sale
investment securities are identified in the following tables (in thousands)
:
                                 
 
 
 
Fair Value Measurements at
Reporting Date Using
 
 
September 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
  $
55,355
    $
55,355
    $
—  
    $
 —  
 
U.S. Government Agency Securities
   
55,459
     
—  
     
55,459
     
—  
 
Certificates of Deposit
   
42,000
     
—  
     
42,000
     
—  
 
Commercial Paper
   
33,715
     
—  
     
33,715
     
—  
 
Corporate Notes/Bonds
   
61,097
     
—  
     
61,097
     
—  
 
  $
247,626
    $
55,355
    $
192,271
    $
 —  
 
             
 
 
 
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 September 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 September 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 September 30, 2019 and December 31, 2018, the Company did not have accounts receivable.
 
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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 nine months ended September 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. We received approximately $529,000 in the third quarter of 2019. As of September 30, 2019
,
 approximately $264,600 is classified as current within prepaid expenses and other current assets and approximately $264,600 is classified as long term within deferred tax assets, net. As of December 31, 2018, approximately $529,000 was classified as current within prepaid expenses and other current assets and approximately $529,000 was classified as long term within deferred tax assets, net.
The Company’s effective tax rate for the nine months ended September 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 comprehe