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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 March 31, 2020

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 001-37345

 

ADURO BIOTECH, INC.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

 

94-3348934

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

740 Heinz Avenue

Berkeley, California 94710

(Address of principal executive offices including zip code)

Registrant’s telephone number, including area code: (510) 848-4400

 

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, par value $0.0001 per share

ADRO

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, 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  

The number of shares of Registrant’s Common Stock outstanding as of April 29, 2020 was 80,837,093.

 

 

 

 


 

Table of Contents

 

 

 

 

Page

 

 

PART I—FINANCIAL INFORMATION

 

Item 1.

 

Condensed Consolidated Financial Statements (unaudited)

3

 

 

Condensed Consolidated Balance Sheets as of March 31, 2020 and December 31, 2019

3

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2020 and 2019

4

 

 

Condensed Consolidated Statements of Comprehensive Loss for the three months ended March 31, 2020 and 2019

5

 

 

Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2020 and 2019

6

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020 and 2019

7

 

 

Notes to the Condensed Consolidated Financial Statements

8

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

23

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

29

Item 4.

 

Controls and Procedures

30

 

 

 

 

 

 

PART II—OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

31

Item 1A.

 

Risk Factors

31

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

65

Item 3.

 

Defaults Upon Senior Securities

65

Item 4.

 

Mine Safety Disclosures

65

Item 5.

 

Other Information

65

Item 6.

 

Exhibits

65

EXHIBIT INDEX

66

SIGNATURES

68

 

In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Aduro” and the “Company” refer to Aduro Biotech, Inc. and its consolidated subsidiaries. Aduro, Aduro Biotech, the Aduro logo and other trade names, trademarks or service marks of Aduro are the property of Aduro Biotech, Inc. This report contains references to our trademarks and to trademarks belonging to other entities. Trade names, trademarks and service marks of other companies appearing in this report are the property of their respective holders. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies.

 

2


 

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (unaudited)

 

ADURO BIOTECH, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited) 

 

 

 

March 31,

 

 

December 31,

 

 

 

2020

 

 

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

94,381

 

 

$

59,624

 

Marketable securities

 

 

108,539

 

 

 

153,978

 

Accounts receivable

 

 

1,053

 

 

 

342

 

Income tax receivable

 

 

5,665

 

 

 

 

Prepaid expenses and other current assets

 

 

2,676

 

 

 

3,958

 

Total current assets

 

 

212,314

 

 

 

217,902

 

Marketable securities

 

 

3,011

 

 

 

 

Property and equipment, net

 

 

22,492

 

 

 

24,688

 

Operating lease right-of-use assets

 

 

20,722

 

 

 

21,110

 

Goodwill

 

 

8,010

 

 

 

8,167

 

Intangible assets, net

 

 

18,478

 

 

 

18,978

 

Restricted cash

 

 

468

 

 

 

468

 

Total assets

 

$

285,495

 

 

$

291,313

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

752

 

 

$

414

 

Accrued clinical trial and manufacturing expenses

 

 

4,823

 

 

 

4,253

 

Accrued expenses and other liabilities

 

 

10,116

 

 

 

8,181

 

Operating lease liabilities

 

 

1,765

 

 

 

1,803

 

Deferred revenue

 

 

5,808

 

 

 

6,950

 

Total current liabilities

 

 

23,264

 

 

 

21,601

 

Contingent consideration

 

 

1,972

 

 

 

1,051

 

Deferred revenue

 

 

165,208

 

 

 

166,963

 

Deferred tax liabilities

 

 

3,459

 

 

 

3,527

 

Operating lease liabilities

 

 

31,258

 

 

 

31,636

 

Other long-term liabilities

 

 

753

 

 

 

940

 

Total liabilities

 

 

225,914

 

 

 

225,718

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 shares authorized; no shares

   issued and outstanding at March 31, 2020 and December 31, 2019

 

 

 

 

 

 

Common stock, $0.0001 par value; 300,000,000 shares authorized; 80,837,093

   and 80,735,688 shares issued and outstanding at March 31, 2020 and

   December 31, 2019

 

 

8

 

 

 

8

 

Additional paid-in capital

 

 

554,192

 

 

 

552,077

 

Accumulated other comprehensive (loss) income

 

 

(140

)

 

 

414

 

Accumulated deficit

 

 

(494,479

)

 

 

(486,904

)

Total stockholders’ equity

 

 

59,581

 

 

 

65,595

 

Total liabilities and stockholders’ equity

 

$

285,495

 

 

$

291,313

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

ADURO BIOTECH, INC.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Revenue:

 

 

 

 

 

 

 

 

Collaboration and license revenue

 

$

13,950

 

 

$

3,938

 

Total revenue

 

 

13,950

 

 

 

3,938

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

15,828

 

 

 

17,494

 

General and administrative

 

 

7,819

 

 

 

8,224

 

Restructuring and related expense

 

 

4,308

 

 

 

2,994

 

Amortization of intangible assets

 

 

136

 

 

 

140

 

Total operating expenses

 

 

28,091

 

 

 

28,852

 

Loss from operations

 

 

(14,141

)

 

 

(24,914

)

Interest income

 

 

920

 

 

 

1,471

 

Other expense, net

 

 

(19

)

 

 

(19

)

Total other income

 

 

901

 

 

 

1,452

 

Loss before income tax

 

 

(13,240

)

 

 

(23,462

)

Income tax benefit

 

 

5,665

 

 

 

35

 

Net loss

 

$

(7,575

)

 

$

(23,427

)

Net loss per common share, basic and diluted

 

$

(0.09

)

 

$

(0.29

)

Shares used in computing net loss per common

   share, basic and diluted

 

 

80,757,801

 

 

 

79,673,294

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

4


 

ADURO BIOTECH, INC.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Net loss

 

$

(7,575

)

 

$

(23,427

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Unrealized (loss) gain on marketable securities, net of tax of $0

 

 

(81

)

 

 

184

 

Foreign currency translation adjustments, net of tax of $0

 

 

(473

)

 

 

(633

)

Other comprehensive loss

 

 

(554

)

 

 

(449

)

Comprehensive loss

 

$

(8,129

)

 

$

(23,876

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


 

ADURO BIOTECH, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2019

 

 

80,735,688

 

 

$

8

 

 

$

552,077

 

 

$

414

 

 

$

(486,904

)

 

$

65,595

 

Issuance of common stock upon exercise of stock options

 

 

88,480

 

 

 

 

 

 

80

 

 

 

 

 

 

 

 

 

80

 

Release of restricted stock units

 

 

12,925

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

2,035

 

 

 

 

 

 

 

 

 

2,035

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(554

)

 

 

 

 

 

(554

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,575

)

 

 

(7,575

)

Balance at March 31, 2020

 

 

80,837,093

 

 

 

8

 

 

 

554,192

 

 

 

(140

)

 

 

(494,479

)

 

 

59,581

 

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Accumulated

Other

Comprehensive

 

 

Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2018

 

 

79,571,714

 

 

 

8

 

 

 

538,895

 

 

 

940

 

 

 

(404,532

)

 

 

135,311

 

Issuance of common stock upon exercise of stock options

 

 

254,481

 

 

 

 

 

 

251

 

 

 

 

 

 

 

 

 

251

 

Release of restricted stock units

 

 

25,850

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation

 

 

 

 

 

 

 

 

3,703

 

 

 

 

 

 

 

 

 

3,703

 

Other comprehensive loss

 

 

 

 

 

 

 

 

 

 

 

(449

)

 

 

 

 

 

(449

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(23,427

)

 

 

(23,427

)

Balance at March 31, 2019

 

 

79,852,045

 

 

 

8

 

 

 

542,849

 

 

 

491

 

 

 

(427,959

)

 

 

115,389

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

6


 

ADURO BIOTECH, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net loss

 

$

(7,575

)

 

$

(23,427

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

Depreciation

 

 

994

 

 

 

1,088

 

Amortization of intangible assets

 

 

136

 

 

 

140

 

Impairment of property and equipment

 

 

1,199

 

 

 

 

Non-cash lease expense

 

 

380

 

 

 

219

 

Accretion of discounts and amortization of premiums on marketable securities

 

 

(294

)

 

 

(353

)

Stock-based compensation

 

 

2,035

 

 

 

3,703

 

Loss from remeasurement of fair value of contingent consideration

 

 

944

 

 

 

 

Deferred income tax

 

 

 

 

 

(35

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(711

)

 

 

11,330

 

Income tax receivable

 

 

(5,665

)

 

 

 

Prepaid expenses and other assets

 

 

1,277

 

 

 

(368

)

Accounts payable

 

 

702

 

 

 

202

 

Deferred revenue

 

 

(2,897

)

 

 

(3,174

)

Accrued clinical trial and manufacturing expenses

 

 

218

 

 

 

216

 

Accrued expenses and other liabilities

 

 

1,798

 

 

 

(1,556

)

Operating lease liabilities

 

 

(406

)

 

 

806

 

Net cash used in operating activities

 

 

(7,865

)

 

 

(11,209

)

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(36,385

)

 

 

(77,790

)

Proceeds from maturities of marketable securities

 

 

79,031

 

 

 

76,103

 

Purchase of property and equipment

 

 

(48

)

 

 

(424

)

Net cash provided by (used in) investing activities

 

 

42,598

 

 

 

(2,111

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Proceeds from exercise of stock options

 

 

80

 

 

 

251

 

Net cash provided by financing activities

 

 

80

 

 

 

251

 

Effect of exchange rate changes

 

 

(56

)

 

 

(127

)

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

34,757

 

 

 

(13,196

)

Cash, cash equivalents and restricted cash at beginning of period

 

 

60,092

 

 

 

126,778

 

Cash, cash equivalents and restricted cash at end of period

 

$

94,849

 

 

$

113,582

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities

 

 

 

 

 

 

 

 

Purchase of property and equipment in accounts payable and accrued liabilities

 

$

 

 

$

41

 

Reconciliation of Cash, Cash Equivalents and Restricted Cash

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

94,381

 

 

$

113,114

 

Restricted cash

 

 

468

 

 

 

468

 

Total cash, cash equivalents and restricted cash

 

$

94,849

 

 

$

113,582

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

7


 

ADURO BIOTECH, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

1. Organization and Nature of Business

Aduro Biotech, Inc., and its wholly owned subsidiaries, or the Company, is an immunotherapy company focused on the discovery, development and commercialization of therapies that are designed to harness the body's natural immune system for the treatment of patients with challenging diseases. The Company is located in Berkeley, California and its wholly-owned subsidiary, Aduro Biotech Holdings, Europe B.V., or Aduro Biotech Europe, is based in the Netherlands. The Company operates in one business segment. 

The Company’s product candidates in the Stimulator of Interferon Genes (STING) and A Proliferation Inducing Ligand (APRIL) pathways are being investigated in cancer, autoimmune and inflammatory diseases. The Company’s lead STING pathway activator product candidate, ADU-S100 (MIW815), which potentially activates the intracellular STING receptor for a potent tumor-specific immune response, is being evaluated in combination with KEYTRUDA® (pembrolizumab), an approved anti-PD-1 monoclonal antibody, as first-line treatment for patients with recurrent or metastatic squamous cell carcinoma of the head and neck (SCCHN). The Company’s anti-APRIL antibody product candidate, BION-1301, a first-in-class fully blocking monoclonal antibody that blocks APRIL binding to both the BCMA and TACI receptors, is being evaluated in patients with IgA nephropathy. The Company is collaborating with leading global pharmaceutical companies to help expand and drive its product pipeline. The Company’s strategy is to rapidly advance first- or best-in-class therapies from its STING and APRIL programs through clinical development and regulatory approval.

 

2. Basis of Presentation, Use of Estimates and Recent Accounting Pronouncements

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, and follow the requirements of the Securities and Exchange Commission, or the SEC, for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted, and accordingly the unaudited condensed consolidated financial statements do not include all of the information and notes required by U.S. GAAP for complete financial statements. These financial statements have been prepared on the same basis as the Company’s annual financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of the Company’s financial information. The results of operations for the three months ended March 31, 2020 are not necessarily indicative of the results to be expected for the year ending December 31, 2020 or for any other interim period or for any other future year.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2019 included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on March 9, 2020.

The condensed consolidated financial statements include the accounts of Aduro Biotech, Inc. and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and reported amounts of revenue and expenses in the financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, clinical trial accruals, contingent consideration, income taxes, right-of-use assets, lease obligations, stock-based compensation, and valuation of intangibles and goodwill. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that management believes to be reasonable under the circumstances. Actual results could differ from these estimates.

 

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standard Update, or ASU, No. 2016-13 – Financial Instruments—Credit Losses (Topic 326). The standard changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. In April 2019, the FASB issued ASU No. 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and

8


 

Hedging, and Topic 825, Financial Instruments, which clarifies and corrects certain unintended applications of the guidance contained in each of the amended Topics. Additionally, in May 2019, the FASB issued ASU No. 2019-05, Financial Instruments – Credit Losses (Topic 326), which provides an option to irrevocably elect to measure certain individual financial assets at fair value instead of amortized cost. In November 2019, the FASB issued ASU No. 2019-10, Financial Instruments – Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842), which defers the effective date for ASU No. 2016-13 for smaller reporting companies to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted for all periods beginning after December 15, 2018. The Company does not plan to early adopt and is currently in the process of evaluating the impact the standard will have on its consolidated financial statements.

In December 2019, the FASB issued ASU No. 2019-12 – Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12). The standard update simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC 740 and also improves consistent application by clarifying and amending existing guidance. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The Company has evaluated the impact of this guidance and has concluded that adoption of the standard will not have a material impact on its consolidated financial statements.

Recently Adopted Accounting Pronouncements 

In August 2018, the FASB issued ASU No. 2018-13 – Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. The standard eliminates certain disclosure requirements for fair value measurements for all entities, requires public entities to disclose certain new information, and modifies some disclosure requirements. The new standard is effective for fiscal years and interim periods beginning after December 15, 2019. The Company adopted the new standard on January 1, 2020. As the result of the adoption the Company is no longer required to disclose (1) the amount of and the reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, (2) the policy for timing of transfers between levels, and (3) the valuation process for Level 3 fair value measurements. Additionally, the Company is required to disclose (1) the changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level 3 fair value measurements held at the end of the reporting period and (2) the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Refer to Note 3 “Fair Value Measurements” for the newly required disclosures resulting from the adoption of this standard.

 

3. Fair Value Measurements

The carrying amounts of certain of the Company’s financial instruments, including cash equivalents, accounts receivable and accounts payable approximate their fair values due to their short maturities. Assets and liabilities recorded at fair value on a recurring basis in the balance sheets, as well as assets and liabilities measured at fair value on a non-recurring basis or disclosed at fair value, are categorized based upon the level of judgment associated with inputs used to measure their fair values. The accounting guidance for fair value provides a framework for measuring fair value and requires certain disclosures about how fair value is determined. Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance also establishes a three-level valuation hierarchy that prioritizes the inputs to valuation techniques used to measure fair value based upon whether such inputs are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions made by the reporting entity. The three-level hierarchy for the inputs to valuation techniques is briefly summarized as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

Level 3—Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

The Company’s cash equivalents, which include money market funds, are classified as Level 1 because they are valued using quoted market prices. The Company’s cash equivalents consisting of corporate debt securities and commercial paper along with the Company’s marketable securities consisting of available-for-sale securities are generally classified as Level 2 because their value is based on valuations using significant inputs derived from or corroborated by observable market data. When quoted prices in active markets for identical assets or liabilities are not available, the Company relies on non-binding quotes from its investment managers, which are based on proprietary valuation models of independent pricing services. These models generally use inputs such as observable market data, quoted market prices for similar instruments, or historical pricing trends of a security relative to its peers. To

9


 

validate the fair value determination provided by its investment managers, the Company reviews the pricing movement in the context of overall market trends and trading information from its investment managers. In addition, the Company assesses the inputs and methods used in determining the fair value in order to determine the classification of securities in the fair value hierarchy.

In certain cases where there is limited activity or less transparency around the inputs to valuation, securities are classified as Level 3. Level 3 liabilities consist of the contingent consideration liability.

The following table sets forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

 

 

 

March 31, 2020

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

69,414

 

 

$

 

 

$

 

 

$

69,414

 

U.S. government and agency securities

 

 

 

 

 

20,047

 

 

 

 

 

 

20,047

 

Corporate debt securities

 

 

 

 

 

43,114

 

 

 

 

 

 

43,114

 

Commercial paper

 

 

 

 

 

57,824

 

 

 

 

 

 

57,824

 

Total

 

$

69,414

 

 

$

120,985

 

 

$

 

 

$

190,399

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration related to acquisition

 

$

 

 

$

 

 

$

1,972

 

 

$

1,972

 

Total

 

$

 

 

$

 

 

$

1,972

 

 

$

1,972

 

 

 

 

December 31, 2019

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

39,994

 

 

$

 

 

$

 

 

$

39,994

 

U.S. government and agency securities

 

 

 

 

 

43,333

 

 

 

 

 

 

43,333

 

Corporate debt securities

 

 

 

 

 

54,590

 

 

 

 

 

 

54,590

 

Commercial paper

 

 

 

 

 

67,536

 

 

 

 

 

 

67,536

 

Total

 

$

39,994

 

 

$

165,459

 

 

$

 

 

$

205,453

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration related to acquisition

 

$

 

 

$

 

 

$

1,051

 

 

$

1,051

 

Total

 

$

 

 

$

 

 

$

1,051

 

 

$

1,051

 

 

The acquisition-date fair value of the contingent consideration liability represents the future consideration that is contingent upon the achievement of specified development milestones for a product candidate. The fair value of the contingent consideration is based on the Company’s probability-weighted discounted cash flow assessment that considers probability and timing of future payments. The fair value measurement is based on significant Level 3 unobservable inputs such as the probability of achieving development milestones, anticipated timelines and discount rate, the values of which as of March 31, 2020 are shown in the table below. Changes in the fair value of the liability for contingent consideration will be recognized in the consolidated statement of operations until settlement.

 

 

 

Unobservable

Input

 

Probability of attaining milestone

 

 

18.8

%

Period of time to achieve milestone (in years)

 

7.8

 

Discount rate

 

 

10.0

%

The Company did not have any financial assets and liabilities measured at fair value on a non-recurring basis as of March 31, 2020 and December 31, 2019.

10


 

The following table sets forth a summary of the changes in the fair value of the Company’s Level 3 financial liabilities (in thousands):

 

 

 

Contingent

Consideration

 

Balance at December 31, 2019

 

$

1,051

 

Net change in fair value upon remeasurement

 

 

944

 

Foreign currency impact on contingent consideration

 

 

(23

)

Balance at March 31, 2020

 

$

1,972

 

 

The following tables summarize the estimated value of the Company’s cash, cash equivalents and marketable securities and the gross unrealized holding gains and losses (in thousands):

 

 

 

March 31, 2020

 

 

 

Amortized

cost

 

 

Unrealized

gains

 

 

Unrealized

losses

 

 

Estimated

Fair Value

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

15,532

 

 

$

 

 

$

 

 

$

15,532

 

Money market funds

 

 

69,414

 

 

 

 

 

 

 

 

 

69,414

 

Commercial paper

 

 

8,389

 

 

 

 

 

 

(4

)

 

 

8,385

 

Corporate debt securities