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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2016

OR

For the transition period from                      to                     

Commission File Number: 001-36781

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: None

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   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act).    Yes   ¨     No   x

The number of shares outstanding of the registrant’s common stock as of July 28, 2016 was 105,779,265.

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Juno Therapeutics, Inc.

Quarterly Report on Form 10-Q

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Juno Therapeutics, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

See accompanying notes.

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Juno Therapeutics, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)

See accompanying notes.

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Juno Therapeutics, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

See accompanying notes.

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Juno Therapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

See accompanying notes.

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Juno Therapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

1. Significant Accounting Policies

Organization and Basis of Presentation

Juno Therapeutics, Inc. (the “Company”) was incorporated in Delaware on August 5, 2013 as FC Therapeutics, Inc., and changed its name to Juno Therapeutics, Inc. on October 23, 2013. The Company is building a fully-integrated biopharmaceutical company focused on re-engaging the body’s immune system to revolutionize the treatment of cancer. Founded on the vision that the use of human cells as therapeutic entities will drive one of the next important phases in medicine, the Company is developing cell-based cancer immunotherapies based on its chimeric antigen receptor (“CAR”) and high-affinity T cell receptor (“TCR”) technologies to genetically engineer T cells to recognize and kill cancer cells.

In January 2016, the Company acquired AbVitro, Inc., (“AbVitro”) a company with a leading next-generation single cell sequencing platform. See Note 2, Acquisition. The AbVitro acquisition is intended to augment the Company’s capabilities to create engineered T cells against a broad array of cancer targets. The Company will initially use this technology in its translation research assays, to find and generate fully-human TCRs and antibodies, and to find novel targets.

The Company is subject to a number of risks similar to other biopharmaceutical companies in the early stage, including, but not limited to, possible failure of preclinical testing or clinical trials, the need to obtain marketing approval for its product candidates, competitors developing new technological innovations, the need to successfully commercialize and gain market acceptance of the Company’s products, protection of proprietary technology, and the need to obtain adequate additional funding. If the Company, or any commercialization partner for the Company’s product candidates, does not successfully commercialize any of the Company’s product candidates, the Company will not be able to generate product revenue or achieve profitability. As of June 30, 2016, the Company had an accumulated deficit of $721.6 million.

The financial data as of December 31, 2015 is derived from the Company’s audited financial statements, which are included in the Company’s Annual Report on Form 10-K, which was filed with the Securities and Exchange Commission (the “SEC”) on February 29, 2016 (the “2015 Annual Report”), and should be read in conjunction with the audited financial statements and notes thereto. The Company’s significant accounting policies are described in Note 2 to the financial statements included in the 2015 Annual Report. Certain prior period amounts have been reclassified to conform to the current period presentation. For the three and six months ended June 30, 2015, $5.3 million and $6.0 million was reclassified from litigation to general and administrative on the condensed consolidated statements of operations, respectively. This reclassification does not have a material impact on the Company’s condensed consolidated financial statements.

The accompanying interim balance sheet as of June 30, 2016, the statements of operations, comprehensive loss and cash flows for the three and six months ended June 30, 2016 and 2015 and the related footnote disclosures are unaudited. These unaudited interim condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). In management’s opinion, the unaudited interim condensed consolidated financial statements have been prepared on the same basis as the audited financial statements and include all adjustments, which include only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of June 30, 2016 and its results of operations and comprehensive loss for the three and six months ended June 30, 2016 and 2015, and its cash flows for the six months ended June 30, 2016 and 2015. The results for the three and six months ended June 30, 2016 and 2015 are not necessarily indicative of the results expected for the full fiscal year or any other interim period.

Use of Estimates

The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from such estimates. See Note 2 to the audited financial statements included in the 2015 Annual Report for additional discussion of these estimates and assumptions.

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The Company utilizes significant estimates and assumptions in determining the estimated success payment and contingent consideration liabilities and associated expense or gain at each balance sheet date. A small change in the Company’s stock price may have a relatively large change in the estimated fair value of the success payment liability and associated expense or gain. Changes in the probabilities and estimated timing of milestones used in the calculation of the contingent consideration liability may have a relatively large impact of the resulting liability and associated expense or gain.

Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation—Stock Compensation (Topic 718) , intended to simplify the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is effective on January 1, 2017, with early adoption permitted. The Company is evaluating the impact of adopting the new accounting guidance on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) . The new guidance requires lessees to recognize the assets and liabilities arising from leases on the balance sheet and additional qualitative and quantitative disclosures will be required. The amendment is effective on January 1, 2019, with early application permitted. The Company is evaluating the impact of adopting the new accounting guidance on its consolidated financial statements.

In 2014, the FASB issued ASU No. 2014-09, Revenue From Contracts With Customers (Topic 606) , amended by ASU No. 2015-14. This new standard will replace all current GAAP guidance on this topic and establishes principles for recognizing revenue upon the transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. This guidance can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. In July 2015, the FASB voted to defer the effective date to January 1, 2018 with early adoption permitted beginning January 1, 2017. The Company is evaluating the impact of adopting the new accounting guidance on its consolidated financial statements.

2. Acquisition

Acquisition of AbVitro

On January 8, 2016, the Company completed the acquisition of 100% of the outstanding equity in AbVitro. The Company paid approximately $74.7 million in cash and issued an aggregate of 1,289,188 shares of the Company’s common stock valued at $46.9 million based on the closing stock price on January 8, 2016 of $36.39 per share. An additional $2.2 million was recorded as post-combination research and development expense in the first quarter of 2016 in connection with the accelerated vesting of employee stock options. Additionally, 24,446 restricted stock units (“RSUs”) were granted to former AbVitro employees, which shares are subject to monthly vesting over three years following the closing of the transaction, contingent on such employees continuing to provide services to the Company through such vesting dates. These will be accounted for as post-acquisition compensation expenses. There are no milestone payment obligations under the terms of the AbVitro acquisition.

The elements of the purchase consideration are as follows (in thousands):

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The allocation of the purchase price is based on estimates of the fair value of assets acquired and liabilities assumed as of the acquisition date. The components of the purchase price allocation are as follows (in thousands):

The fair value of the acquired in-process research and development (“IPR&D”) has been estimated using the replacement cost method. Under this method, the Company estimated the cost to recreate the technology and derived an estimated value to develop the technology. IPR&D assets are required to be classified as indefinite-lived assets until they become definite lived assets upon the successful completion or the abandonment of the associated research and development effort. Accordingly, during the development period after the date of acquisition, we do not expect these assets to begin to be amortized until the first instance they are used for translational assays. At that time, the Company will determine the useful life of the asset and begin amortization. If the associated research and development effort is abandoned, the related IPR&D assets will be written-off and an impairment charge recorded.

The excess of the purchase price over the estimated fair value of the tangible net assets and identifiable intangible assets acquired was recorded as goodwill. The factors contributing to the recognition of the amount of goodwill in the AbVitro acquisition include the ability to accelerate the generation of binders that recognize known targets and discover novel cancer antigen targets. The acquisition also provides the Company with the ability to utilize translational assays to provide a better understanding of the natural immune response to cancer as well as to interrogate and monitor the immune system of patients during treatment. None of the goodwill is expected to be deductible for income tax purposes.

Post-Acquisition and Pro Forma Consolidated Financial Information

The AbVitro acquisition did not have a material impact on the Company’s condensed consolidated statements of operations, and therefore actual and pro forma disclosures have not been presented. The intangible assets acquired in the AbVitro acquisition are IPR&D, and as such, there would be no pro forma adjustment needed for the amortization of intangible assets.

Transaction Costs

The Company incurred approximately $0.4 million of direct transaction costs related to the AbVitro acquisition for the six months ended June 30, 2016. These costs are included in general and administrative expenses in the condensed consolidated statements of operations.

3. Collaboration and License Agreements

Celgene

The Company is party to a Master Research and Collaboration Agreement (“Celgene Collaboration Agreement”) with Celgene Corporation and one of its wholly owned subsidiaries (together, “Celgene”) pursuant to which the Company and Celgene agreed to collaborate on researching, developing, and commercializing novel cellular therapy product candidates and other immuno-oncology and immunology therapeutics, including, in particular, CAR and TCR product candidates. The Company is also party to a Share Purchase Agreement (the “Celgene Share Purchase Agreement”) with Celgene. The Celgene Collaboration Agreement and Celgene Share Purchase Agreement, and the Company’s accounting analysis pertaining to these agreements, are described in Note 4 of the financial statements included in the 2015 Annual Report.

In March 2016, Celgene exercised its annual right to purchase additional shares of the Company’s common stock to “top-up” its ownership interest in the Company. Celgene purchased 1,137,593 shares at a price of $41.32 per share, for an aggregate cash purchase price of $47.0 million. As Celgene did not exercise the top-up right in full to reach 10% ownership that would have been permitted by the top-up right, the top-up right that will be triggered by the filing of the Company’s Annual Report on Form 10-K for the fiscal year ending December 31, 2016 will only permit Celgene to top-up its ownership stake of the Company’s common stock to 9.76%.

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In April 2016, Celgene exercised its opt-in right to develop and commercialize product candidates from the Company’s CD19 program outside North America and China. As a result, the Company and Celgene entered into a license agreement (the “Celgene CD19 License”) pursuant to which Celgene received an exclusive, royalty-bearing license to develop and commercialize therapeutic CAR product candidates from the Company’s CD19 program in all territories outside of North America and China (the “Celgene Territory”). The Company retains all rights to develop further and commercialize such product candidates in North America and China (the “Juno Territory”). The Company and Celgene will generally share worldwide research and development costs, while the Company will be responsible for commercialization costs in the Juno Territory and Celgene will be responsible for commercialization costs in the Celgene Territory. The Company has the right to participate in specified commercialization activities for licensed products arising from the CD19 program in certain major European markets. Celgene has the right to participate in specified commercialization activities in North America for licensed products for certain indications under the CD19 program. The Company received a $50.0 million option exercise fee from Celgene upon the exercise of Celgene’s option to license CAR product candidates from the CD19 program. The Company will also receive royalties from Celgene for CAR product candidates arising from the CD19 program at a percentage in the mid-teens of net sales of such product candidates in the Celgene Territory.

The Celgene CD19 License agreement contains the following deliverables: (1) an exclusive license with respect to intellectual property, (2) transfer of certain clinical and manufacturing knowledge and related support, and (3) participation on various collaboration committees during the technology transfer period. The Company has accounted for these deliverables as a single unit of accounting because they do not have standalone value and the obligations will be delivered throughout the estimated period of performance. The $50.0 million option exercise fee was recorded in deferred revenue and is being recognized ratably over the period in which the Company expects to fulfill these performance obligations, which was initially determined to be approximately two years.

To the extent the Company’s research and development costs for the CD19 program exceed Celgene’s research and development costs for the CD19 program for a given quarter, Celgene is required to provide partial reimbursement to the Company for such costs. The Company recognizes the reimbursement by Celgene as revenue in the period the services are performed. To the extent Celgene’s research and development costs for the CD19 program exceed the Company’s research and development costs for the CD19 program for a given quarter, the Company is required to provide Celgene partial reimbursement for such costs. The Company recognizes the reimbursement to Celgene as additional research and development expense in the period the services are provided.

The Company recognized revenue of $18.8 million and $22.6 million in the three and six months ended June 30, 2016, respectively, in connection with the Celgene Collaboration Agreement and the Celgene CD19 License. There was no revenue recognized under the Celgene Collaboration Agreement for the three and six months ended June 30, 2015.

Fred Hutchinson Cancer Research Center

In October 2013, the Company entered into a collaboration agreement with the Fred Hutchinson Cancer Research Center (“FHCRC”) focused on research and development of cancer immunotherapy products and a license agreement pertaining to certain patent rights. The Company also granted FHCRC rights to certain share-based success payments. The collaboration agreement, license agreement, the share-based success payments, and the Company’s accounting analysis pertaining to these agreements and share-based success payments, are described in Note 4 of the financial statements included in the 2015 Annual Report. In December 2015, the Company entered into an agreement with FHCRC to support the establishment of a clinical immunotherapy trial unit.

Excluding the expense or gain related to success payment obligations, the Company recognized $4.1 million and $2.4 million of research and development expenses in connection with its collaboration and funding agreements with FHCRC for the three months ended June 30, 2016 and 2015, respectively, and $8.7 million and $4.4 million for the six months ended June 30, 2016 and 2015, respectively.

The estimated fair value of the total success payment obligation to FHCRC, after giving effect to the success payments achieved and paid in December 2015, was approximately $55.3 million and $67.3 million as of June 30, 2016 and December 31, 2015, respectively. With respect to the FHCRC success payment obligations, the Company recognized expense of $1.9 million in the three months ended June 30, 2016 compared with an expense of $2.8 million in the three months ended June 30, 2015. The Company recognized a gain of $2.8 million in the six months ended June 30, 2016 compared to an expense of $29.9 million in the six months ended June 30, 2015. The expense and gain are recorded in research and development expense in the condensed consolidated statements of operations,

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and represent the change in the FHCRC success payment liability during such periods and the respective months of accrued expenses. The FHCRC success payment liabilities on the condensed consolidated balance sheets as of June 30, 2016 and December 31, 2015 were $30.9 million and $33.8 million, respectively.

The Company’s liability for share-based success payments under the FHCRC collaboration is carried at fair value and recognized as expense over the term of the six-year collaboration agreement. To determine the estimated fair value of the success payment liability, the Company uses a Monte Carlo simulation methodology which models the future movement of stock prices based on several key variables. The following variables were incorporated in the calculation of the estimated fair value of the success payment liability as of the following balance sheet dates:

The computation of expected volatility was estimated using a combination of available information about the historical volatility of stocks of similar publicly-traded companies for a period matching the expected term assumption and the Company’s historical and implied volatility. The risk free interest rate and expected term assumptions depend on the estimated timing of U.S. Food & Drug Administration (“FDA”) approval. In addition, the Company incorporated the estimated number and timing of valuation measurement dates in the calculation of the success payment liability.

Memorial Sloan Kettering Cancer Center

In November 2013, the Company entered into a sponsored research agreement with Memorial Sloan Kettering Cancer Center (“MSK”) focused on research and development relating to CAR T cell technology and a license agreement pertaining to certain patent rights and intellectual property rights related to certain know-how. The Company also granted MSK rights to certain share-based success payments. The sponsored research agreement, license agreement, the share-based success payments, and the Company’s accounting analysis pertaining to these agreements and share-based success payments, are described in Note 4 of the financial statements included in the 2015 Annual Report. The Company is also party to clinical study agreements with MSK.

Excluding the expense or gain related to success payment obligations, the Company recognized $0.1 million and $1.8 million of research and development expenses in connection with its research and clinical agreements with MSK for the three months ended June 30, 2016 and 2015, respectively, and $0.8 million and $2.8 million for the six months ended June 30, 2016 and 2015, respectively.

The estimated fair value of the total success payment obligation to MSK, after giving effect to the success payment achieved in December 2015 and paid in March 2016, was approximately $33.8 million and $48.9 million as of June 30, 2016 and December 31, 2015, respectively. With respect to the MSK success payment obligations, the Company recognized expense of $1.6 million in the three months ended June 30, 2016 compared to an expense of $1.2 million in the three months ended June 30, 2015. The Company recognized a gain of $0.3 million in the six months ended June 30, 2016 compared to an expense of $12.9 million in the six months ended June 30, 2015. The expense and gain are recorded in research and development expense in the condensed consolidated statements of operations, and represent the change in the MSK success payment liability during such periods and the respective months of accrued expense. The MSK success payment liabilities on the condensed consolidated balance sheets as of June 30, 2016 and December 31, 2015 were $21.2 million and $31.0 million, respectively.

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The Company’s liability for share-based success payments under the MSK collaboration is carried at fair value and recognized as expense over the term of the five-year collaboration agreement. To determine the estimated fair value of the success payment liability, the Company uses a Monte Carlo simulation methodology which models the future movement of stock prices based on several key variables. The following variables were incorporated in the calculation of the estimated fair value of the success payment liability as of the following balance sheet dates:

The computation of expected volatility was estimated using a combination of available information about the historical volatility of stocks of similar publicly-traded companies for a period matching the expected term assumption and the Company’s historical and implied volatility. The risk free interest rate and expected term assumptions depend on the estimated timing of FDA approval. In addition, the Company incorporated the estimated number and timing of valuation measurement dates in the calculation of the success payment liability.

St. Jude Children’s Research Hospital/Novartis

The Company is party to a license agreement with St. Jude (“St. Jude License Agreement”) pertaining to certain patent rights owned by St. Jude. In connection with the April 2015 settlement of Trustees of the University of Pennsylvania v. St. Jude Children’s Research Hospital, Civil Action No. 2:13-cv-01502-SD (E.D. Penn.), in which the Company was a party (the “Penn Litigation”), the Company entered into a sublicense agreement (the “Penn/Novartis Sublicense Agreement”) with the Trustees of the University of Pennsylvania and an affiliate of Novartis pursuant to which the Company granted to Novartis a sublicense pertaining to patent rights licensed to the Company under the St. Jude License Agreement. The St. Jude License Agreement and the Penn/Novartis Sublicense Agreement are described in Note 4 of the financial statements included in the 2015 Annual Report.

In January 2016, a clinical milestone was met under both the Penn/Novartis Sublicense Agreement and the St. Jude License Agreement, pursuant to which the Company received a payment of $5.8 million from Novartis, and the Company made a corresponding payment to St. Jude of $5.0 million. A second clinical milestone was met in June 2016, in connection with which the Company received a payment of $8.5 million from Novartis, and the Company made a corresponding payment to St. Jude of $7.5 million.

Seattle Children’s Research Institute

In February 2014, the Company entered into a sponsored research agreement with Seattle Children’s Research Institute (“SCRI”) and a license agreement with SCRI pertaining to certain patent rights. The Company is also party to clinical support and manufacturing services agreements with SCRI related to the Company’s JCAR017 trials. The sponsored research agreement, license agreement, and clinical support agreement with SCRI are described in Note 4 of the financial statements included in the 2015 Annual Report.

The Company recognized $1.6 million and $0.2 million of research and development expenses in connection with its sponsored research, clinical support and manufacturing services agreements with SCRI for the three months ended June 30, 2016 and 2015, respectively. The Company recognized $2.4 million and $0.3 million of research and development expenses in connection with its sponsored research, clinical support and manufacturing services agreements with SCRI for the six months ended June 30, 2016 and 2015, respectively.

Opus Bio

The Company is party to a license agreement with Opus Bio, Inc. (“Opus Bio”) pertaining to certain patent rights and data. The license agreement is described in Note 4 of the financial statements included in the 2015 Annual Report.

Two milestones under the license agreement were achieved in the first quarter of 2016, for which the Company issued a total of 603,364 shares of its common stock as payment and recorded research and development expense of $23.2 million based on the fair value of the common stock on the date the milestones were achieved. After giving effect to the achievement of these milestones, as of June 30, 2016, one milestone required to be paid in equity in the amount of $25.0 million remains to be achieved, along with up to $215.0 million in milestones payable in cash.

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Fate Therapeutics

In May 2015, the Company entered into a collaboration and license agreement with Fate Therapeutics, Inc. (“Fate Therapeutics”), to identify and utilize small molecules to modulate the Company’s genetically-engineered T cell product candidates to improve their therapeutic potential for cancer patients. The collaboration and license agreement is described in Note 4 of the financial statements included in the 2015 Annual Report. The Company recognized $0.5 million and $1.0 million of research and development expense in connection with its collaboration agreement with Fate Therapeutics for the three and six months ended June 30, 2016, respectively. The Company recognized $0.3 million of research and development expense in the three and six months ended June 30, 2015.

Editas Medicine

In May 2015, the Company entered into a collaboration and license agreement with Editas Medicine, Inc. (“Editas”), to pursue research programs utilizing Editas’ genome editing technologies with Juno’s CAR and TCR technologies. The collaboration and license agreement is described in Note 4 of the financial statements included in the 2015 Annual Report. The Company recognized $1.3 million and $2.0 million of research and development expense in connection with its collaboration agreement with Editas for the three and six months ended June 30, 2016, respectively. The Company recognized $0.2 million of research and development expense in the three and six months ended June 30, 2015.

4. Cash Equivalents and Marketable Securities

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

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The following tables summarize the gross unrealized holding losses and fair value for investments in an unrealized loss position, and the length of time that individual securities have been in a continuous loss position (in thousands):

The Company evaluated its securities for other-than-temporary impairment and considers the decline in market value for the securities to be primarily attributable to current economic and market conditions. For the debt securities, it is not more likely than not that the Company will be required to sell the securities, and the Company does not intend to do so prior to the recovery of the amortized cost basis.

The Company evaluated the near-term prospects of the Fate Therapeutics investment in relation to the severity and duration of the impairment and based on that evaluation the Company determined that the equity security is other-than-temporarily impaired (“OTTI”). Accordingly, a loss of $5.5 million was recognized in net loss on the condensed consolidated statements of operations for the three and six months ended June 30, 2016.

All marketable securities have an effective maturity date of three years or less and are available for use and therefore classified as available-for-sale.

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5. Fair Value Measurements

The following tables set forth the fair value of the Company’s financial assets and liabilities measured at fair value on a recurring basis based on the three-tier fair value hierarchy (in thousands):

The Company measures the fair value of money market funds based on quoted prices in active markets for identical assets or liabilities. The Level 2 marketable securities include U.S. government and agency securities, corporate debt securities, and commercial paper and are valued either based on recent trades of securities in inactive markets or based on quoted market prices of similar instruments and other significant inputs derived from or corroborated by observable market data.

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

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As of June 30, 2016 and December 31, 2015, the estimated fair value of the success payment obligations, after giving effect to the success payments achieved by FHCRC and MSK, was approximately $89.1 million and $116.2 million, respectively. Included in research and development expense for the three months ended June 30, 2016 and 2015 was expense of $3.5 million and $4.0 million, respectively, related to success payments. Included in research and development expense for the six months ended June 30, 2016 and 2015 was a gain of $3.1 million and an expense of $42.9 million, respectively, related to success payments. See Note 3, Collaboration and License Agreements, to these condensed consolidated financial statements, as well as Note 4 to the financial statements included in the 2015 Annual Report, for additional discussion of estimated fair value of the success payment obligations.

The Company utilizes significant estimates and assumptions in determining the estimated success payment liability and associated expense at each balance sheet date. A small change in the Company’s stock price may have a relatively large change in the estimated fair value of the success payment liability and associated expense.

In connection with the acquisitions of Stage Cell Therapeutics GmbH (“Stage”) and X-Body, Inc. (“X-Body”) in the second quarter of 2015, the Company agreed to pay additional amounts based on the achievement of certain technical, clinical, regulatory, and commercialization milestones. This contingent consideration is measured at fair value and is based on significant inputs not observable in the market, which represents a Level 3 measurement within the fair value hierarchy. The valuation of contingent consideration uses assumptions the Company believes would be made by a market participant. The Company assesses these estimates on an on-going basis as additional data impacting the assumptions is obtained.

Contingent consideration may change significantly as development progresses and additional data are obtained, impacting the Company’s assumptions regarding probabilities of successful achievement of related milestones used to estimate the fair value of the liability and the timing in which they are expected to be achieved. In evaluating the fair value information, judgment is required to interpret the data used to develop the estimates. The estimates of fair value may not be indicative of the amounts that could be realized in a current market exchange. Accordingly, the use of different market assumptions and/or different valuation techniques could result in materially different fair value estimates.

The significant unobservable inputs used in the measurement of fair value of the Company’s contingent consideration are probabilities of successful achievement of the milestones, the period in which these milestones are expected to be achieved ranging from 2016 to 2043, and a discount rate of 16%. Significant increases or decreases in any of the probabilities of success and other inputs would result in a significantly higher or lower fair value measurement, respectively.

As of June 30, 2016, the estimated fair values of the contingent consideration associated with the Stage and X-Body acquisitions were $25.6 million and $6.1 million, respectively. The Company recognized a gain of $5.5 million and $0.1 million, which was recorded in research and development expense, in the six months ended June 30, 2016 and 2015, respectively, related to the change in fair value of the contingent consideration.

6. Stock-Based Compensation

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Total stock-based compensation cost related to unvested awards not yet recognized and the weighted average periods over which the awards are expected to be recognized as of June 30, 2016 for all employees are as follows:

Management estimates expected forfeitures and recognizes compensation costs only for those equity awards expected to vest.

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The fair value of each stock option granted has been determined using the Black-Scholes option pricing model. The material factors incorporated in the Black-Scholes model in estimating the fair value of the options granted to employees, directors, and consultants included the following:

For employees, scientific founders, and directors, the expected life was calculated based on the simplified method as permitted by the SEC Staff Accounting Bulletin No. 110, Share-Based Payment . For other service providers, the expected life was calculated using the contractual term of the award. Management’s estimate of expected volatility was based on available information about the historical volatility of stocks of similar publicly-traded companies for a period matching the expected term assumption and its own historical and implied future volatility. The risk-free interest rate is based on a U.S. Treasury instrument whose term is consistent with the expected life of the stock options. In addition to the assumptions above, management made an estimate of expected forfeitures and is recognizing compensation costs only for those equity awards expected to vest.

In April 2016, the Company agreed to repurchase 240,381 shares of common stock issued to MSK at a repurchase price of $41.90 per share.

7. Comprehensive Income (Loss)

The components of accumulated other comprehensive income (loss) and the adjustments to other comprehensive income (loss) are as follows (in thousands):

The details of the components of other comprehensive income (loss) are as follows (in thousands):

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8. Income Taxes

The Company recorded an income tax benefit of $8.5 million on a pre-tax loss of $144.4 million for the six months ended June 30, 2016. Of the total income tax benefit, $6.7 million relates to the release of valuation allowance on the U.S. deferred tax assets as a result of the deferred tax liabilities established for intangible assets from the acquisition of AbVitro, net of tax attributes, and $1.4 million relates the benefit associated with the net loss incurred by the Company’s German subsidiary in the six months ended June 30, 2016. The remaining tax benefit of $0.4 million relates to intraperiod allocation of taxes between continuing operations and other comprehensive income.

For the prior year, the Company recorded an income tax benefit of $1.6 million on a pre-tax loss of $132.5 million for the six months ended June 30, 2015. Of the $1.6 million total tax benefit, $0.5 million relates to the net loss incurred by the Company’s German subsidiary in the period from May 11, 2015 to June 30, 2015, as the Company has determined that it is more-likely-than-not that it will realize the benefit of these losses. The remaining $1.1 million of income tax benefit relates to the release of valuation allowance on the U.S. deferred tax assets as a result of the deferred tax liabilities established for definite lived intangible assets from the acquisition of X-Body.

The Company maintains a full valuation allowance on its net U.S. deferred tax assets. The assessment regarding whether a valuation allowance is required considers both positive and negative evidence when determining whether it is more-likely-than-not that deferred tax assets are recoverable. In making this assessment, significant weight is given to evidence that can be objectively verified. In its evaluation, the Company considered its cumulative loss in recent years and its forecasted losses in the near-term as significant negative evidence. Based upon a review of the four sources of income identified within ASC 740, the Company determined that the negative evidence outweighed the positive evidence and a full valuation allowance on its U.S. net deferred tax assets will be maintained. The Company will continue to assess the realizability of its deferred tax assets going forward and will adjust the valuation allowance as needed. The Company has determined that it is more-likely-than-not that it will realize the benefit of the losses for its German subsidiary and has not recorded a valuation allowance against the German deferred tax assets.

The Company follows the provisions of ASC 740, Accounting for Income Taxes , and the accounting guidance related to accounting for uncertainty in income taxes. The Company determines its uncertain tax positions based on a determination of whether and how much of a tax benefit taken by the Company in its tax filings or positions is more likely than not to be sustained upon examination by the relevant income tax authorities. The Company has not, as yet, conducted a study of tax credit carryforwards. Such a study, if undertaken by the Company, would not result in a material adjustment to the Company’s tax credit carryforwards. The Company will recognize both accrued interest and penalties related to unrecognized benefits in income tax expense. The Company is generally subject to examination by the U.S. federal and local income tax authorities for all tax years in which a loss carryforward is available and is subject to examination in Germany for four years.

The Company applies judgment in the determination of the consolidated financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. As of June 30, 2016 and December 31, 2015, the Company had no material unrecognized or uncertain tax benefits.

9. Net Loss per Share

Basic and diluted net loss per share is calculated by dividing net loss by the weighted average number of common shares outstanding during the period, without consideration for common stock equivalents. The Company’s potentially dilutive shares, which include unvested restricted stock, unvested RSUs, options to purchase common stock, and potential shares issued for success payments, are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive.

The amounts in the table below were excluded from the calculation of diluted net loss per share for the periods indicated due to their anti-dilutive effect:

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10. Commitments and Contingencies

Leases

The Company has entered into various lease agreements for its office, laboratory, and manufacturing spaces with original lease periods expiring between 2016 and 2026. In addition to minimum rent, certain leases require payment of real estate taxes, insurance, common area maintenance charges and other executory costs. These executory costs are not included in the table below. Certain of these arrangements have free or escalating rent payment provisions. The Company recognizes rent expense under such arrangements on a straight-line basis over the effective term of each lease.

The following table summarizes the Company’s future minimum lease commitments as of June 30, 2016 (in thousands):

Rent expense for the three months ended June 30, 2016 and 2015 was $1.3 million and $0.5 million, respectively. Rent expense for the six months ended June 30, 2016 and 2015 was $2.4 million and $0.9 million, respectively.

Litigation

From time to time the Company is involved in claims, proceedings, and litigation arising in the ordinary course of business. The amount of any liability is not probable or the amount cannot be reasonably estimated and therefore accruals have not been made. At this time, the Company does not expect litigation matters to have a material adverse impact on its business, financial position, or results of operations.

11. Related-Party Transactions

The Company is party to the Celgene Collaboration Agreement, the Celgene Share Purchase Agreement, a voting agreement, and a registration rights agreement with Celgene, who is a holder of more than 5% of the Company’s common stock. See Note 3, Collaboration and License Agreements, to these condensed consolidated financial statements, as well as Note 4 to the financial statements included in the 2015 Annual Report.

12. Subsequent Events

In July 2016, the Company acquired RedoxTherapies, Inc., a privately-held company (“RedoxTherapies”), for a $10.0 million upfront cash payment. The Company also agreed to pay additional amounts upon achievement of clinical, regulatory, and commercial milestones. The acquisition provides the Company with an exclusive license to vipadenant, a small molecule A2a receptor antagonist that has the potential to disrupt important immunosuppressive pathways in the tumor microenvironment in certain cancers. The Company has not yet completed the initial accounting for this transaction.

In August 2016, the Company entered into a license agreement with MSK and Eureka Therapeutics, Inc. pursuant to which the Company obtained an exclusive license pertaining to a fully-human binding domain targeting B-cell maturation antigen (BCMA), as well as binders against two additional undisclosed multiple myeloma targets to be used for the potential development and commercialization of CAR cell therapies for patients with multiple myeloma. The Company made an upfront cash payment and agreed to pay additional amounts upon achievement of clinical, regulatory, and commercial milestones, as well as royalties on net sales.

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