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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

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 0-17999

ImmunoGen, Inc.

Massachusetts

04-2726691

(State or other jurisdiction of incorporation or
organization)

(I.R.S. Employer Identification No.)

830 Winter Street, Waltham, MA 02451

(Address of principal executive offices, including zip code)

(781) 895-0600

(Registrant’s telephone number, including area code)

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

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common Stock, $.01 par value

IMGN

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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12-b2 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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Shares of common stock, par value $.01 per share: 220,536,032 shares outstanding as of May 2, 2022.

Table of Contents

IMMUNOGEN, INC.

FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2022

TABLE OF CONTENTS

Item

    

  

Page Number

Part I

Financial Information

1.

Financial Statements (Unaudited)

2

1a.

Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021

2

1b.

Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2022 and 2021

3

1c.

Consolidated Statements of Shareholders’ Equity for the three months ended March 31, 2022 and the three months ended March 31, June 30, September 30, and December 31, 2021

4

1d.

Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021

5

1e.

Notes to Consolidated Financial Statements

6

2.

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

17

3.

Quantitative and Qualitative Disclosures about Market Risk

23

4.

Controls and Procedures

23

Part II

Other Information

1A.

Risk Factors

23

6.

Exhibits

25

Signatures

26

Forward-looking statements

This Form 10-Q includes forward-looking statements. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, these forward-looking statements relate to analyses and other information that are based on beliefs, expectations, assumptions, and forecasts of future results and estimates of amounts that are not yet determinable. These statements also relate to our prospects, future developments, product candidates, and business strategies.

These forward-looking statements are identified by their use of terms and phrases, such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “will,” and other similar terms and phrases, including references to assumptions. These statements are contained in the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors” sections, as well as the notes to our financial statements and other sections of this report.

We may not actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements, and investors should not place undue reliance on our forward-looking statements. Additionally, these forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause actual results to be materially different from those contemplated by our forward-looking statements. These known and unknown risks, uncertainties, and other factors are described in detail in the “Risk Factors” section and in other sections of this report and our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (SEC) on February 28, 2022, as updated and/or supplemented in subsequent filings with the SEC. Except as required by law, we disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

1

Table of Contents

ITEM 1. Financial Statements

IMMUNOGEN, INC.

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

In thousands, except per share amounts

    

March 31,

    

December 31,

2022

2021

ASSETS

Cash and cash equivalents

$

437,661

$

478,750

Accounts receivable

 

1,190

 

4,467

Unbilled receivable

 

3,643

 

2,345

Contract assets

3,000

3,000

Non-cash royalty receivable

2,417

4,115

Prepaid and other current assets

 

8,807

 

7,322

Total current assets

 

456,718

 

499,999

Property and equipment, net of accumulated depreciation

 

4,431

 

4,663

Operating lease right-of-use assets

11,888

12,392

Other assets

 

8,672

 

8,711

Total assets

$

481,709

$

525,765

LIABILITIES AND SHAREHOLDERS’ EQUITY

Accounts payable

$

16,060

$

18,434

Accrued compensation

 

3,408

 

5,469

Other accrued liabilities

 

28,730

 

23,077

Current portion of liability related to the sale of future royalties, net of deferred financing costs of $199 and $198, respectively

8,741

6,077

Current portion of operating lease liability

3,762

3,537

Current portion of deferred revenue

 

23,417

 

44,351

Total current liabilities

 

84,118

 

100,945

Deferred revenue, net of current portion

 

46,694

 

47,717

Operating lease liability, net of current portion

14,263

15,244

Liability related to the sale of future royalties, net of current portion and deferred financing costs of $323 and $381, respectively

29,490

34,967

Other long-term liabilities

 

676

 

1,306

Total liabilities

 

175,241

 

200,179

Commitments and contingencies (Note H)

Shareholders’ equity:

Preferred stock, $.01 par value; authorized 5,000 shares; no shares issued and outstanding as of each of March 31, 2022 and December 31, 2021

 

 

Common stock, $.01 par value; authorized 300,000 shares; 220,536 and 220,361 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively

 

2,205

 

2,204

Additional paid-in capital

 

1,799,551

 

1,794,525

Accumulated deficit

 

(1,495,288)

 

(1,471,143)

Total shareholders’ equity

 

306,468

 

325,586

Total liabilities and shareholders’ equity

$

481,709

$

525,765

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

2

Table of Contents

IMMUNOGEN, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

In thousands, except per share amounts

Three Months Ended

March 31,

    

2022

    

2021

Revenues:

License and milestone fees

$

30,892

$

157

Non-cash royalty revenue related to the sale of future royalties

6,428

15,545

Research and development support

 

758

 

4

Total revenues

 

38,078

 

15,706

Operating expenses:

Research and development

 

44,282

 

34,413

Selling, general and administrative

 

16,648

 

10,209

Total operating expenses

 

60,930

 

44,622

Loss from operations

 

(22,852)

 

(28,916)

Investment income, net

 

54

 

13

Non-cash interest expense on liability related to the sale of future royalties and convertible senior notes

(1,249)

(4,644)

Interest expense on convertible senior notes

(24)

Other expense, net

 

(98)

 

(480)

Net loss

$

(24,145)

$

(34,051)

Basic and diluted net loss per common share

$

(0.10)

$

(0.17)

Basic and diluted weighted-average common shares outstanding

 

253,263

 

198,835

Total comprehensive loss

$

(24,145)

$

(34,051)

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

3

Table of Contents

IMMUNOGEN, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(UNAUDITED)

In thousands

Additional

Total

Common Stock

Paid-In

Accumulated

Shareholders’

Shares

Amount

Capital

Deficit

Equity

Balance at December 31, 2020

 

194,998

$

1,950

$

1,419,460

$

(1,331,840)

$

89,570

Net loss

(34,051)

(34,051)

Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan

397

4

1,282

1,286

Issuance of common stock, net of issuance costs

4,544

45

33,447

33,492

Restricted stock units vested

2

Stock option and restricted stock compensation expense

3,674

3,674

Directors’ deferred share unit compensation

149

149

Balance at March 31, 2021

199,941

$

1,999

$

1,458,012

$

(1,365,891)

$

94,120

Net loss

(30,741)

(30,741)

Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan

75

1

377

378

Conversion of convertible senior notes

239

3

997

1,000

Common stock issuance costs

(34)

(34)

Stock option and restricted stock compensation expense

3,598

3,598

Directors’ deferred share unit compensation

144

144

Balance at June 30, 2021

200,255

$

2,003

$

1,463,094

$

(1,396,632)

$

68,465

Net loss

(37,339)

(37,339)

Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan

95

1

367

368

Issuance of common stock, net of issuance costs

2,150

21

12,336

12,357

Issuance of pre-funded warrant, net of issuance costs

29,765

29,765

Restricted stock award forfeitures

(57)

(1)

1

Common stock issuance costs

Stock option and restricted stock compensation expense

3,298

3,298

Directors’ deferred share unit compensation

179

179

Balance at September 30, 2021

202,443

$

2,024

$

1,509,040

$

(1,433,971)

$

77,093

Net loss

(37,172)

(37,172)

Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan

431

4

1,733

1,737

Issuance of common stock, net of issuance costs

17,487

176

108,039

108,215

Issuance of pre-funded warrant, net of issuance costs

169,280

169,280

Stock option and restricted stock compensation expense

6,224

6,224

Directors’ deferred share unit compensation

209

209

Balance at December 31, 2021

220,361

$

2,204

$

1,794,525

$

(1,471,143)

$

325,586

Net loss

(24,145)

(24,145)

Issuance of common stock pursuant to the exercise of stock options and employee stock purchase plan

173

1

619

620

Restricted stock units vested

2

Stock option and restricted stock compensation expense

4,196

4,196

Directors’ deferred share unit compensation

211

211

Balance at March 31, 2022

220,536

$

2,205

$

1,799,551

$

(1,495,288)

$

306,468

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

4

Table of Contents

IMMUNOGEN, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

In thousands

Three Months Ended

March 31,

    

2022

    

2021

Cash flows from operating activities:

Net loss

$

(24,145)

$

(34,051)

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

Non-cash royalty revenue related to sale of future royalties

(2,364)

(15,545)

Non-cash interest expense on liability related to sale of future royalties and convertible senior notes

1,249

4,644

Depreciation and amortization

 

473

 

551

Stock and deferred share unit compensation

 

4,407

 

3,823

Change in operating assets and liabilities:

Accounts receivable

 

3,277

 

(58)

Unbilled receivable

 

(1,298)

 

(5,394)

Prepaid and other current assets

 

(1,485)

 

(7,520)

Operating lease right-of-use assets

504

424

Other assets

 

39

 

3,661

Accounts payable

 

(2,308)

 

3,802

Accrued compensation

 

(2,061)

 

(1,571)

Other accrued liabilities

 

5,023

 

3,487

Deferred revenue

 

(21,957)

 

(72)

Operating lease liability

(756)

(802)

Net cash used for operating activities

 

(41,402)

 

(44,621)

Cash flows from investing activities:

Purchases of property and equipment

(307)

(893)

Net cash used for investing activities

 

(307)

 

(893)

Cash flows from financing activities:

Proceeds from issuance of common stock under stock plans

 

620

 

1,286

Proceeds from common stock issuance, net of $70 of transaction costs

33,492

Net cash provided by financing activities

 

620

 

34,778

Net change in cash and cash equivalents

 

(41,089)

 

(10,736)

Cash and cash equivalents, beginning of period

 

478,750

293,856

Cash and cash equivalents, end of period

$

437,661

$

283,120

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

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IMMUNOGEN, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

A.

Nature of Business and Plan of Operations

ImmunoGen, Inc. (the Company) was incorporated in Massachusetts in 1981 and is focused on the development and commercialization of antibody-drug conjugates (ADCs) for the treatment of cancer. The Company has generally incurred operating losses and negative cash flows from operations since inception, incurred a net loss of $24.1 million during the three months ended March 31, 2022, and has an accumulated deficit of approximately $1.5 billion as of March 31, 2022. The Company has primarily funded these losses through payments received from its collaborations and equity, convertible debt, and other financings. To date, the Company has had no revenues from commercial sales of its own products and management expects to continue to incur substantial operating losses for at least the near term as the Company incurs significant operating expenses related to research and development and potential commercialization of its portfolio.

As of March 31, 2022, the Company had $437.7 million of cash and cash equivalents on hand. The Company anticipates that its current capital resources will enable it to meet its operational expenses and capital expenditures for more than twelve months after the date these financial statements were issued. The Company may raise additional funds through equity, debt, or other financings, or generate revenues from collaborators through a combination of upfront license payments, milestone payments, royalty payments, and research funding. There can be no assurance, however, that the Company will be able to obtain additional equity, debt, or other financing or generate revenues from collaborators on terms acceptable to the Company or at all. The failure of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company’s business, results of operations, and financial condition and require the Company to defer or limit some or all of its research, development, and/or clinical projects.

The Company is subject to risks common to companies in the biotechnology industry including, but not limited to, the development by its competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, manufacturing and marketing limitations, complexities associated with managing collaboration arrangements, third-party reimbursements, and compliance with governmental regulations.

B.

Basis of Presentation and Significant Accounting Policies

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. The consolidated financial statements include all of the adjustments, consisting only of normal recurring adjustments, which management considers necessary for a fair presentation of the Company’s financial position in accordance with accounting principles generally accepted in the U.S. for interim financial information. The December 31, 2021 consolidated balance sheet presented for comparative purposes was derived from the Company’s audited financial statements, and certain information and footnote disclosures normally included in the Company’s annual financial statements have been condensed or omitted. The preparation of interim financial statements requires the use of management’s estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the interim financial statements and the reported amounts of revenues and expenditures during the reported periods. The results of the interim periods are not necessarily indicative of the results for the entire year. Accordingly, the interim financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 28, 2022.

Significant Accounting Policies

The significant accounting policies used in preparation of these condensed consolidated financial statements for the three months ended March 31, 2022 are consistent with those discussed in Note B to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

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Revenue Recognition

Transaction Price Allocated to Future Performance Obligations

Deferred revenue under ASC 606, Revenue from Contracts with Customers, represents the portion of the transaction price received under various contracts attributed to performance obligations that have not been satisfied (or have been partially performed) and includes unexercised contract options that are considered material rights. As of March 31, 2022, the aggregate amount of the transaction price allocated to remaining performance obligations comprising deferred revenue was $70.1 million. The Company expects to recognize revenue on approximately 33%, 55%, and 12% of the remaining performance obligations over the next 12 months, 13 to 60 months, and 61 to 120 months, respectively; however, it does not control when or if any collaborator will terminate existing development and commercialization licenses.

Contract Balances from Contracts with Customers

The following tables present changes in the Company’s contract assets and contract liabilities during the three months ended March 31, 2022 and 2021 (in thousands):

Balance at

Balance at

December 31, 2021

 

Additions

Deductions

Impact of Netting

March 31, 2022

Contract asset

$

3,000

$

$

$

$

3,000

Contract liabilities (deferred revenue)

$

92,068

$

3,803

$

(25,760)

$

$

70,111

Balance at

Balance at

December 31, 2020

Additions

Deductions

Impact of Netting

March 31, 2021

Contract asset

$

$

$

$

$

Contract liabilities (deferred revenue)

$

110,109

$

$

(72)

$

$

110,037

The Company recognized the following revenues as a result of changes in contract asset and contract liability balances in the respective periods (in thousands):

Three Months Ended

March 31,

2022

2021

Revenue recognized in the period from:

Amounts included in contract liabilities at the beginning of the period

$

25,760

$

72

Pursuant to the Company’s license agreement with Hangzhou Zhongmei Huadong Pharmaceutical Co., Ltd. (Huadong), upon delivery of clinical materials in the three months ended March 31, 2022, the Company recognized as license and milestone fee revenue $21.6 million of the $28.5 million remaining deferred revenue balance as of December 31, 2021 related to the $45.0 million of upfront and development milestone payments previously received. Additionally, pursuant to a license agreement executed with Eli Lilly and Company (Lilly), during the three months ended March 31, 2022, the Company received an upfront payment of $13.0 million, of which $9.2 million was recognized as license and milestone fee revenue and the remainder deferred, further details of which can be found in Note C, “Agreements.” The Company also recognized $4.1 million of previously deferred non-cash royalty revenue related to the sale of rights to KADCYLA® royalties, further details of which can be found in Note E, “Liability Related to Sale of Future Royalties,” and recognized $0.1 million of license and milestone fee revenue related to numerous collaborators’ rights to technological improvements that had been previously deferred.

During the three months ended March 31, 2021, the Company recognized $0.1 million of license and milestone fee revenue related to numerous collaborators’ rights to technological improvements that had been previously deferred.

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The timing of revenue recognition, billings, and cash collections results in billed receivables, unbilled receivables, contract assets, and contract liabilities on the consolidated balance sheets. When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded (under the caption deferred revenue). Contract liabilities are recognized as revenue after control of the products or services is transferred to the customer and all revenue recognition criteria have been met.

Financial Instruments and Concentration of Credit Risk

Cash and cash equivalents are primarily maintained with three financial institutions in the U.S. Deposits 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. The Company’s cash equivalents consist of money market funds with underlying investments primarily being U.S. Government-issued securities and high quality, short-term commercial paper. Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents, and marketable securities. The Company held no marketable securities as of March 31, 2022 and December 31, 2021. The Company’s investment policy, approved by the Board of Directors, limits the amount it may invest in any one type of investment, thereby reducing credit risk concentrations.

Cash and Cash Equivalents

The Company considers all highly liquid financial instruments with maturities of three months or less when purchased to be cash equivalents. As of March 31, 2022 and December 31, 2021, the Company held $437.7 million and $478.8 million, respectively, in cash and money market funds, which were classified as cash and cash equivalents.

Non-cash Investing and Financing Activities

The Company had $0.1 million and $0.2 million of accrued capital expenditures as of March 31, 2022 and December 31, 2021, respectively, which have been treated as a non-cash investing activity and, accordingly, are not reflected in the consolidated statement of cash flows.

Fair Value of Financial Instruments

Fair value is defined under ASC 820, Fair Value Measurements and Disclosures, as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The standard describes a hierarchy to measure fair value, which is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

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As of March 31, 2022 and December 31, 2021, the Company held certain assets that are required to be measured at fair value on a recurring basis. The fair value of the Company’s cash equivalents is based on quoted prices from active markets (Level 1 inputs). The carrying amounts reflected in the consolidated balance sheets for accounts receivable, unbilled receivables, prepaid and other current assets, accounts payable, accrued compensation, and other accrued liabilities approximate fair value due to their short-term nature.

As of March 31, 2021, the Company had outstanding convertible 4.5% senior notes (convertible notes) with a gross carrying amount and estimated fair value of $2.1 million and $5.4 million, respectively. The fair value of the convertible notes was influenced by interest rates, the Company’s stock price and stock price volatility, and by prices observed in trading activity for the convertible notes. Because there were no trades involving the convertible notes since September 2019, however, the fair value as of March 31, 2021 used Level 3 inputs. In June 2021, $1.0 million of outstanding convertible 4.5% senior notes converted into 238,777 shares of the Company’s common stock, par value $0.01 per share (common stock), with the remaining $1.1 million of convertible 4.5% senior notes paid in cash upon maturity on July 1, 2021.

Common Stock Warrants

The Company accounts for common stock warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance included in Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 480, Distinguishing Liabilities from Equity (ASC 480) and ASC 815, Derivatives and Hedging (ASC 815). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, whether the warrants meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock and whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.

For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance and remeasured each balance sheet date thereafter. Changes in the estimated fair value of the liability-classified warrants are recognized as a non-cash gain or loss in the accompanying consolidated statements of operations and comprehensive loss.

Computation of Net Loss per Common Share

Basic and diluted net loss per share is calculated based upon the weighted average number of shares of common stock outstanding during the period. Shares of the Company’s common stock underlying pre-funded warrants are included in the calculation of basic and diluted earnings per share. During periods of income, participating securities are allocated a proportional share of income determined by dividing total weighted-average participating securities by the sum of the total weighted average common shares and participating securities (the two-class method). Shares of the Company’s restricted stock participate in any dividends that may be declared by the Company and are therefore considered to be participating securities. Participating securities have the effect of diluting both basic and diluted earnings per share during periods of income. During periods of loss, no loss is allocated to participating securities since they have no contractual obligation to share in the losses of the Company. Diluted loss per share is computed after giving consideration to the dilutive effect of stock options, convertible notes, and restricted stock that are outstanding during the period, except where such non-participating securities would be anti-dilutive.

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The Company’s common stock equivalents, as calculated in accordance with the treasury-stock method for options and unvested restricted stock, and the if-converted method for the convertible notes, are shown in the following table (in thousands):

Three Months Ended

March 31,

    

2022

    

2021

Options outstanding to purchase common stock, shares issuable under the employee stock purchase plan, and unvested restricted stock/units at end of period

27,012

21,320

Common stock equivalents under treasury stock method for options, shares issuable under the employee stock purchase plan, and unvested restricted stock/units

1,981

 

3,553

Shares issuable upon conversion of convertible notes at end of period

-

501

Common stock equivalents under if-converted method for convertible notes

-

501

The Company’s common stock equivalents have not been included in the net loss per share calculation because their effect is anti-dilutive due to the Company’s net loss position.

Stock-Based Compensation

As of March 31, 2022, the Company was authorized to grant future awards under three employee share-based compensation plans, which are the ImmunoGen, Inc. Amended and Restated 2018 Employee, Director and Consultant Equity Incentive Plan (the 2018 Plan), the Employee Stock Purchase Plan (the ESPP), and the ImmunoGen Inducement Equity Incentive Plan (the Inducement Plan). At the annual meeting of shareholders on June 16, 2021, the 2018 Plan was amended to provide for the issuance of stock grants, the grant of options, and the grant of stock-based awards for up to an additional 6,600,000 shares of the Company’s common stock, as well as up to 22,392,986 shares of common stock, which represent the number of shares of common stock remaining under the 2018 Plan as of March 31, 2021, and awards previously granted under the 2018 Plan and the Company’s former stock-based plans, including the ImmunoGen, Inc. 2016 and 2006 Employee, Director and Consultant Equity Incentive Plans, that forfeit, expire, or cancel without delivery of shares of common stock or which resulted in the forfeiture of shares of common stock back to the Company subsequent to March 31, 2021. The Inducement Plan was approved by the Board of Directors in December 2019, and pursuant to subsequent amendments, provides for the issuance of non-qualified option grants for up to 7,000,000 shares of the Company’s common stock. Options awarded under the two plans are granted with an exercise price equal to the market price of the Company’s stock at the date of grant. Options vest at various periods of up to four years and may be exercised within ten years of the date of grant under each of these plans.

The stock-based awards are accounted for under ASC 718, “Compensation—Stock Compensation.” Pursuant to ASC 718, the estimated grant date fair value of awards is charged to the statement of operations over the requisite service period, which is the vesting period. The fair value of each stock option is estimated on the date of grant using the Black-Scholes option-pricing model with the weighted-average assumptions noted in the following table. As the Company has not paid dividends since inception, nor does it expect to pay any dividends for the foreseeable future, the expected dividend yield assumption is zero. Expected volatility is based exclusively on historical volatility of the Company’s stock. The expected term of stock options granted is based exclusively on historical data and represents the period of time that stock options granted are expected to be outstanding. The expected term is calculated for and applied to one group of stock options as the Company does not expect substantially different exercise or post-vesting termination behavior among its option recipients. The risk-free rate of the stock options is based on the U.S. Treasury rate in effect at the time of grant for the expected term of the stock options.

Three Months Ended March 31,

    

2022

2021

Dividend

None

None

Volatility

83.0%

85.4%

Risk-free interest rate

1.81%

0.62%

Expected life (years)

6.0

6.0

Using the Black-Scholes option-pricing model, the weighted-average grant date fair values of options granted during the three months ended March 31, 2022 and 2021 were $3.78 and $5.47 per share, respectively.

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A summary of option activity under the Company’s equity plans for the three months ended March 31, 2022 is presented below (in thousands, except weighted-average data):

    

    

Weighted-

Number

Average

of Stock

Exercise

Options

Price

Outstanding at December 31, 2021

21,219

$

6.28

Granted

5,957

5.34

Exercised

(173)

3.59

Forfeited/Canceled

(66)

10.51

Outstanding at March 31, 2022

26,937

$

6.08

In 2020, the Company issued 2.6 million performance-based stock options to certain employees, all of which remained outstanding as of March 31, 2022, that will vest upon the achievement of specified performance goals. In October 2021, upon approval by the Compensation Committee of the Company’s Board of Directors, certain terms of the performance-based stock option award agreements were modified. Pursuant to ASC 718, the Company determined the modification to be a Type IV (improbable-to-improbable) modification and revalued the modified awards as of the modification date. Upon assessment of the performance-based stock option awards as of December 31, 2021, the Company determined the first performance goal to be probable of vesting and, as such, recorded $2.6 million of stock-based compensation expense for the year ended December 31, 2021. The modification date fair value of the performance-based stock options that could be expensed in future periods is $7.8 million.

A summary of restricted stock unit activity under the Company’s equity plans for the three months ended March 31, 2022 is presented below (in thousands, except weighted-average data):

Number of

Weighted-

Restricted

Average Grant

Stock Shares

Date Fair Value

Unvested at December 31, 2021

77

$

5.59

Granted

-

-

Vested

 

(2)

2.53

Unvested at March 31, 2022

75

$

5.68

In June 2018, the Company's Board of Directors, with shareholder approval, adopted the Employee Stock Purchase Plan (ESPP). Following the automatic share increase on January 1, 2021, pursuant to the ESPP’s “evergreen” provision, an aggregate of 2,000,000 shares of common stock have been reserved for issuance under the ESPP. ESPP purchase periods are six months and begin on January 1 and July 1 of each year, with purchase dates occurring on the final business day of the given purchase period. The fair value of each ESPP award is estimated on the first day of the offering period using the Black-Scholes option-pricing model. The Company recognizes share-based compensation expense equal to the fair value of the ESPP awards on a straight-line basis over the offering period.

Stock compensation expense related to stock options and restricted stock unit awards granted under the stock plans and the ESPP was $4.2 million and $3.7 million during the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the estimated fair value of unvested employee awards, exclusive of performance awards, was $46.9 million. The weighted-average remaining vesting period for these awards is approximately three years.

Segment Information

During all periods presented, the Company continued to operate in one reportable business segment under the management approach of ASC 280, Segment Reporting, which is the business of the discovery and development of ADCs for the treatment of cancer.

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During the three months ended March 31, 2022 and 2021, 17% and 99%, respectively, of revenues were from Roche, consisting primarily of non-cash royalty revenue. During the three months ended March 31, 2022, 59% and 24% of revenues were from Huadong and Lilly, respectively. There were no other customers of the Company that generated significant revenues in the three months ended March 31, 2022 and 2021.

Recently Adopted Accounting Pronouncements

There were no recently issued or effective ASUs that had, or are expected to have, a material effect on the Company's results of operations, financial condition, or liquidity.

C.Agreements

Significant Collaborative Agreements

Lilly

In February 2022, the Company entered into a license agreement with Eli Lilly and Company (Lilly), pursuant to which the Company granted Lilly worldwide exclusive rights to research, develop, and commercialize antibody-drug conjugates based on the Company’s novel camptothecin technology. Under the terms of the license agreement, the Company received a non-refundable upfront payment of $13.0 million, reflecting initial targets selected by Lilly. Lilly may select a pre-specified number of additional targets, with the Company eligible to receive an additional $32.5 million in exercise fees if Lilly licenses the full number of additional targets over the four year period following the effective date of the license agreement, with the potential for up to $1.7 billion in development and sales-based milestone payments if all targets are selected and all milestones are realized. In addition, the Company is entitled to receive tiered royalties, on a product-by-product basis, as a percentage of worldwide annual net sales by Lilly, based on certain net sales thresholds. Lilly is responsible for all costs associated with the research, development, and commercialization of any ensuing products.

The Company evaluated the agreement and determined it was within the scope of ASC 606. The Company determined the promised goods and services included an exclusive license to use the Company’s intellectual property and know-how to research, develop, and commercialize products related to each of the initial targets selected by Lilly. Each of these licenses is distinct, as Lilly can derive benefit from each license independent of any other initial target licenses. Accordingly, the license to each of the initial targets selected by Lilly represents a separate performance obligation. Lilly has the right to replace each of the initial licensed targets once during a specified term for no additional consideration. If Lilly fails to advance an initial or replacement target to a specified stage within a specified period from the date the target was selected, Lilly’s rights to the respective target will cease and will revert back to the Company. The Company determined Lilly’s right to a replacement target for each of the initial targets represented a material right. Each material right is therefore a separate performance obligation.

Lilly’s right to select additional targets does not represent a material right as the target fee for each additional target is the same and is also consistent with the target fee for each of the initial targets selected by Lilly. Accordingly, each additional target selected by Lilly, if any, will be accounted for as a separate arrangement.

The transaction price was determined to consist of the upfront payment of $13.0 million. Future development milestones have been fully constrained. Any consideration related to sales-based milestones (including royalties) will be recognized when the related sales occur as these amounts have been determined to relate predominantly to the license granted to Lilly. The transaction price of $13.0 million was allocated to the performance obligations based on their relative stand-alone selling prices. In consideration of each target being at the same stage of development at the time of the initial license or at the time of replacement and each target having approximately the same earnings potential, the Company allocated the $13.0 million transaction price equally across the initial target licenses and the corresponding material rights to obtain licenses to replacement targets, adjusted based on the probability that Lilly would exercise those rights. The Company considered pharmaceutical industry data of the probability of early-stage assets to advance to clinical stage in determining the probability that Lilly would exercise its option to a replacement target. Accordingly, $9.2 million and $3.8 million of the total transaction price was allocated to the initial targets and the material rights to obtain licenses to replacement targets, respectively. The Company re-evaluates the transaction price, including its estimated variable

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consideration included in the transaction price and all constrained amounts, at each reporting period and as uncertain events are resolved or other changes in circumstances occur.

Upon completion of the transfer of intellectual property and know-how to Lilly during the quarter ended March 31, 2022, the Company recognized $9.2 million of license and milestone fee revenue related to the portion of the transaction price allocated to the initial target licenses. The $3.8 million allocated to the material rights to obtain licenses to replacement targets is included in long-term deferred revenue as of March 31, 2022, and will be recognized when the right is either exercised or expires.

Roche

In 2000, the Company granted Genentech, now a unit of Roche, an exclusive development and commercialization license to use the Company’s maytansinoid ADC technology. Pursuant to this agreement, Roche developed and received marketing approval for its HER2-targeting ADC, KADCYLA, in the U.S., Japan, the European Union, and numerous other countries. In accordance with the Company’s revenue recognition policy, $6.4 million and $15.5 million of non-cash royalties on net sales of KADCYLA were recognized and included in non-cash royalty revenue for the three months ended March 31, 2022 and 2021, respectively. The Company sold its rights to receive royalty payments on the net sales of KADCYLA through two separate transactions in 2015 and 2019. Following the 2019 transaction, OMERS, the defined benefit pension plan for municipal employees in the Province of Ontario, Canada, is entitled to receive all of these royalties.

Huadong

In October 2020, the Company entered into a collaboration and license agreement with Huadong. The collaboration and license agreement grants Huadong an exclusive, royalty-bearing, and sublicensable right to develop and commercialize mirvetuximab soravtansine (the Licensed Product) in the People’s Republic of China, Hong Kong, Macau, and Taiwan (collectively, Greater China). The Company retains exclusive rights to the Licensed Product outside of Greater China. Under the terms of the collaboration and license agreement, the Company received a non-refundable upfront payment of $40.0 million with the potential for approximately $265.0 million in development, regulatory, and sales-based milestone payments.

In December 2021, the Company received a $5.0 million payment upon achievement of a development milestone. The Company determined that revenue related to the agreement would be recognized as the clinical supply of the Licensed Product is delivered to Huadong, estimated to be completed over approximately two years. Accordingly, based on clinical supply delivered to Huadong in the three months ended March 31, 2022, the Company recorded $21.6 million of the $28.5 million remaining deferred balance as of December 31, 2021 related to the $45.0 million of upfront and development milestone payments previously received. As of March 31, 2022, total deferred revenue related to the Huadong arrangement was $6.9 million and is expected to be recognized during 2022 as additional clinical supply is delivered.

Viridian

In October 2020, the Company entered into a license agreement with Viridian Therapeutics, Inc. pursuant to which the Company granted Viridian the exclusive right to develop and commercialize an insulin-like growth factor-1 receptor (IGF-1R) antibody for all non-oncology indications that do not use radiopharmaceuticals in exchange for an upfront payment, with the potential to receive up to a total of $143.0 million in development, regulatory, and sales-based milestone payments plus royalties on the commercial sales of any resulting product. In the three months ended December 31, 2021, a $3.0 million development milestone became probable of being achieved, which was allocated to the previously delivered license and recognized as revenue as a component of license and milestone fees for the three months ended December 31, 2021. The development milestone was subsequently achieved in April 2022.

For additional information related to these agreements, as well as the Company’s other significant collaborative agreements, please read Note C, “Agreements - Significant Collaborative Agreements,” to the audited financial statements included within the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 28, 2022.

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D.

Liability Related to Sale of Future Royalties

In 2015, Immunity Royalty Holdings, L.P. (IRH) purchased the right to receive 100% of the royalty payments on commercial sales of KADCYLA arising under the Company’s development and commercialization license with Genentech, until IRH had received aggregate royalties equal to $235.0 million or $260.0 million, depending on when the aggregate royalties received by IRH reach a specified milestone. Once the applicable threshold was met, the Company would thereafter have received 85% and IRH would have received 15% of the KADCYLA royalties for the remaining royalty term. At the consummation of the transaction, the Company received cash proceeds of $200 million. As part of this sale, the Company incurred $5.9 million of transaction costs, which are presented net of the liability in the accompanying consolidated balance sheet and are being amortized to interest expense over the estimated life of the royalty purchase agreement. Although the Company sold its rights to receive royalties from the sales of KADCYLA, as a result of its then ongoing involvement in the cash flows related to these royalties, the Company continues to account for these royalties as revenue and recorded the $200.0 million in proceeds from this transaction as a liability related to sale of future royalties (Royalty Obligation) that is being amortized using the interest method over the estimated life of the royalty purchase agreement.

In January 2019, the Company sold its residual rights to receive royalty payments on commercial sales of KADCYLA to OMERS for a payment of $65.2 million (amount is net of $1.5 million in broker fees). Simultaneously, OMERS purchased IRH’s right to the royalties the Company previously sold to IRH as described above, therefore obtaining the rights to 100% of the royalties received from that date on. Because the Company will not be involved with the cash flows related to the residual royalties, the $65.2 million of net proceeds received from the sale of its residual rights to receive royalty payments was recorded as deferred revenue and will be amortized as the royalty revenue related to the residual rights is earned using the units of revenue approach. During the second quarter of 2021, the aggregate royalty threshold was met and, in accordance with the Company’s revenue recognition policy, $4.1 million of revenue related to the residual rights was recognized and is included in non-cash royalty revenue for the three months ended March 31, 2022. Additionally, the purchase of IRH’s interest by OMERS did not result in an extinguishment or modification of the original instrument and, accordingly, the Company continues to account for the remaining obligation as a liability as outlined above.

The following table shows the activity within the liability account during the three-month period ended March 31, 2022 (in thousands):

Three Months Ended

    

March 31, 2022

Liability related to sale of future royalties, net — beginning balance

$

41,044

Proceeds from sale of future royalties, net

 

KADCYLA royalty payments received and paid

 

(4,062)

Non-cash interest expense recognized

1,249

Liability related to sale of future royalties, net — ending balance

$

38,231

The Company receives royalty reports and royalty payments related to sales of KADCYLA from Roche one quarter in arrears. As royalties are remitted to OMERS, the balance of the Royalty Obligation will be effectively repaid over the life of the agreement. In order to determine the amortization of the Royalty Obligation, the Company is required to estimate the total amount of future royalty payments to be received and remitted as noted above over the life of the agreement. The sum of these amounts less the $200 million proceeds the Company received from IRH will be recorded as interest expense over the life of the Royalty Obligation. Since inception, the Company’s estimate of this total interest expense has resulted in an imputed annual interest rate of 10.5%, and a current imputed interest rate of 11.5% as of March 31, 2022. The Company periodically assesses the estimated royalty payments to IRH/OMERS, and to the extent such payments are greater or less than its initial estimates, or the timing of such payments is materially different than its original estimates, the Company will prospectively adjust the amortization of the Royalty Obligation. There are a number of factors that could materially affect the amount and timing of royalty payments from Genentech, most of which are not within the Company’s control. Such factors include, but are not limited to, changing standards of care, the introduction of competing products, manufacturing or other delays, biosimilar competition, patent protection, adverse events that result in governmental health authority imposed restrictions on the use of the drug products, significant changes in foreign exchange rates as the royalties are paid in U.S. dollars (USD) while significant portions of the underlying sales of KADCYLA are made in currencies other than USD, and other events or circumstances that could result in reduced royalty

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payments from KADCYLA, all of which would result in a reduction of non-cash royalty revenues and the non-cash interest expense over the life of the Royalty Obligation. Conversely, if sales of KADCYLA are more than expected, the non-cash royalty revenues and the non-cash interest expense recorded by the Company would be greater over the term of the Royalty Obligation.

E.

Income Taxes

As part of the Tax Cuts and Jobs Act of 2017 (TCJA), beginning with the 2022 tax year, the Company is required to capitalize research and development expenses, as defined under Internal Revenue Code section 174. For expenses that are incurred for research and development in the U.S., the amounts will be amortized over 5 years, and expenses that are incurred for research and experimentation outside the U.S. will be amortized over 15 years.  The Company expects that this provision will result in a significant decrease to its 2022 tax loss, but will not result in an actual tax liability for 2022.

F.

Capital Stock

Pre-Funded Warrant

On August 11, 2021, the Company entered into a Securities Purchase Agreement (SPA) with RA Capital Healthcare Fund, L.P. (RA Capital), pursuant to which the Company agreed to sell to RA Capital a pre-funded warrant to purchase up to an aggregate of 5,434,782 shares of the Company’s common stock for $5.51 per share of common stock underlying the pre-funded warrant. The per share exercise price of the pre-funded warrant is $0.01. The private placement resulted in aggregate net proceeds of $29.7 million.

In connection with a public offering in December 2021, the Company issued pre-funded warrants to purchase up to an aggregate of 16,000,000 and 11,363,636 shares of the Company’s common stock to RA Capital and Redmile Group, LLC, respectively, for $6.59 per share of common stock underlying the pre-funded warrants, which, together with the per share exercise price of $0.01, is equal to $6.60, the public offering price of the shares of common stock in the public offering, which resulted in aggregate net proceeds of $169.3 million. RA Capital and Redmile Group, LLC are each considered related parties pursuant to ASC 850, Related Party Disclosures.

The pre-funded warrants’ fundamental transaction provision does not provide the warrant holders with the option to settle any unexercised warrants for cash in the event of any fundamental transactions; rather, in all fundamental transaction scenarios, the warrant holder will only be entitled to receive from the Company or any successor entity the same type or form of consideration (and in the same proportion) that is being offered and paid to the shareholders of the Company in connection with the fundamental transaction, whether that consideration be in the form of cash, stock or any combination thereof. The pre-funded warrants also include a separate provision whereby the exercisability of the warrants may be limited if, upon exercise, the warrant holder or any of its affiliates would beneficially own more than 9.99% of the Company’s common stock. This threshold is subject to the holder’s rights under the pre-funded warrants to increase or decrease such percentage to any other percentage not in excess of 19.99% upon at least 61 days’ prior notice from the holder to the Company.

The Company assessed the pre-funded warrants for appropriate equity or liability classification pursuant to the Company’s accounting policy described in Note B, “Summary of Significant Accounting Policies.” During this assessment, the Company determined the pre-funded warrants are freestanding instruments that do not meet the definition of a liability pursuant to ASC 480 and do not meet the definition of a derivative pursuant to ASC 815. The pre-funded warrants are indexed to the Company’s common stock and meet all other conditions for equity classification under ASC 480 and ASC 815. Based on the results of this assessment, the Company concluded that the pre-funded warrants are freestanding equity-linked financial instruments that meet the criteria for equity classification under ASC 480 and ASC 815. Accordingly, the pre-funded warrants were classified as equity and accounted for as a component of additional paid-in capital at the time of issuance and at each subsequent balance sheet date. The Company also determined that the pre-funded warrants should be included in the determination of basic and diluted earnings per share in accordance with ASC 260, Earnings per Share.

Compensation Policy for Non-Employee Directors

Pursuant to the Compensation Policy for Non-Employee Directors, as amended, non-employee directors are granted deferred share units upon initial election to the Board of Directors and annually thereafter. Initial awards and annual retainers vest quarterly over approximately three years and one year from the date of grant, respectively,

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contingent upon the individual remaining a director of ImmunoGen as of each vesting date. The number of deferred share units awarded is fixed per the policy on the date of the award. All unvested deferred share units will automatically vest immediately prior to the occurrence of a change of control. The redemption amount of deferred share units issued will be paid in shares of common stock of the Company on the date a director ceases to be a member of the Board of Directors.

Pursuant to the Compensation Policy for Non-Employee Directors, as amended, non-employee directors also receive stock option awards upon initial election to the Board of Directors and annually thereafter. The directors received a total of 352,000 and 300,000 options in 2021 and 2020, respectively, and the related compensation expense for the three months ended March 31, 2022 and 2021 is included in the amounts discussed in the “Stock-Based Compensation” section of Note B above.

G.

Leases

The Company currently has one real estate lease with CRP/King 830 Winter L.L.C. for the rental of approximately 120,000 square feet of laboratory and office space at 830 Winter Street, Waltham, Massachusetts through March 2026. The Company uses this space for its corporate headquarters and other operations. The Company may extend the lease for two additional terms of five years and is required to pay certain operating expenses for the leased premises subject to escalation charges for certain expense increases over a base amount. During 2020, the Company executed four subleases for approximately 65,000 square feet of this space in the aggregate through the remaining initial term of the lease. The balance of the space is being used by the Company.

The Company’s operating lease liabilities related to its real estate lease agreements were calculated using a collateralized incremental borrowing rate. The weighted average discount rate for the operating lease liability is approximately 11%. A 100 basis point change in the incremental borrowing rate would result in less than a $1 million impact to the ROU assets and liabilities recorded. Lease expense for operating lease payments is recognized on a straight-line basis over the lease term, which was $1.0 million in each of the three-month periods ended March 31, 2022 and 2021 and is included in operating expenses in the consolidated statement of operations. Cash paid against operating lease liabilities was $1.2 million and $1.4 million in the three-month periods ended March 31, 2022 and 2021, respectively. As of March 31, 2022, the Company’s ROU asset and lease liability for operating leases totaled $11.9 million and $18.0 million, respectively, and the weighted-average remaining term of the operating leases is approximately four years.

The maturities of operating lease liabilities discussed above are as follows (in thousands):

2022 (nine months remaining)

    

$

4,114

2023

 

5,503

2024

 

5,522

2025

 

5,543

2026

 

1,429

Thereafter

 

13

Total lease payments

22,124

Less imputed interest

(4,099)

Total lease liabilities

$

18,025

In addition to the amounts in the table above, the Company is also responsible for variable operating expenses and real estate taxes that are expected to approximate $3.4 million per year through March 2026.

Sublease Income

In 2020, the Company executed four agreements to sublease a total of approximately 65,000 square feet of the Company’s leased space at 830 Winter Street, Waltham, Massachusetts through March 2026. During each of the three months ended March 31, 2022 and 2021, the Company recorded $1.2 million of sublease income, inclusive of the sublessees’ proportionate share of operating expenses and real estate taxes for the period.

Two of the four sublease agreements include an early termination option after certain periods of time for an agreed-upon fee. Assuming no early termination option is exercised, the Company is entitled to receive $12.5 million in minimum rental payments over the remaining term of the subleases, which is not included in the operating lease liability table above. The sublessees are also responsible for their proportionate share of variable operating expenses and real estate taxes.

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H.         Commitments and Contingencies

Manufacturing Commitments

As of March 31, 2022, the Company had noncancelable obligations under several agreements related to in-process and future manufacturing of antibody, drug substance, and cytotoxic agents required for supply of the Company’s product candidates totaling $18.3 million. Additionally, pursuant to commercial agreements for future production of antibody, our noncancelable commitments total $53.9 million at March 31, 2022.

Litigation

The Company is not a party to any material litigation.

I.Related Party Transactions

The Company’s chief executive officer has served as a director on the Board of Ergomed PLC since June 2021. During the three months ended March 31, 2022, the Company executed agreements with Ergomed Clinical Research, Inc. and PrimeVigilance USA, Inc., subsidiaries of Ergomed PLC, for clinical trial and pharmacovigilance-related services. Ergomed Clinical Research, Inc. and PrimeVigilance USA, Inc. are each considered related parties pursuant to ASC 850, Related Party Disclosures. Expenses recorded related to these agreements during the three months ended March 31, 2022 were not material to the Company’s consolidated statement of operations.

J.Subsequent Events

The Company has evaluated all events or transactions that occurred after March 31, 2022, up through the date the Company issued these financial statements. In April 2022, a development milestone pursuant to the Company’s license agreement with Viridian was achieved, triggering a $3.0 million payment to the Company. The revenue related to this milestone was recorded in 2021 when it was determined to be probable of being achieved. The Company did not have any other material subsequent events.

ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following information should be read in conjunction with the unaudited financial statements and the notes thereto included elsewhere in this report, and the consolidated financial statements and notes thereto for the year ended December 31, 2021, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the United States Securities and Exchange Commission, or the SEC, on February 28, 2022.

OVERVIEW

We are a clinical-stage biotechnology company focused on developing the next generation of antibody-drug conjugates (ADCs) to improve outcomes for cancer patients. By generating targeted therapies with enhanced anti-tumor activity and favorable tolerability profiles, we aim to disrupt the progression of cancer and offer patients more good days. We call this our commitment to “target a better now.”

An ADC with our proprietary technology comprises an antibody that binds to a target found on tumor cells and is conjugated to one of our potent anti-cancer agents as a “payload” to kill the tumor cell once the ADC has bound to its target. ADCs are an expanding approach to the treatment of cancer, with eleven approved products and the number of agents in development growing significantly in recent years.

We have established a leadership position in ADCs with a portfolio of differentiated product candidates to address both solid tumors and hematological malignancies.

Our business

Our lead program is mirvetuximab soravtansine (MIRV), a first-in-class investigational ADC targeting FRα, a cell-surface protein over-expressed in a number of epithelial tumors, including ovarian, endometrial, and non-small-cell lung cancers. Following consultation with the FDA, we initiated two trials of MIRV in patients with platinum-resistant ovarian cancer whose tumors express high levels of FRα: SORAYA, a single-arm clinical trial that could lead to accelerated approval, pending FDA review; and MIRASOL, a randomized Phase 3 clinical trial that, if successful, could lead to full approval in this setting. In November 2021, we reported positive top-line data from SORAYA with an

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overall response rate (ORR) by investigator of 32.4%. At the Society of Gynecologic Oncology (SGO) 2022 Annual Meeting in March 2022, we reported the full data set from SORAYA, including the median duration of response of 6.9 months. In March 2022, we submitted a biologics license application (BLA) to the FDA for accelerated approval of MIRV in second through fourth-line patients with FRα-positive, platinum-resistant ovarian cancer.

Beyond platinum-resistant ovarian cancer, our strategy is to move MIRV into platinum-sensitive disease and become the combination agent of choice in ovarian cancer. To this end, we initiated PICCOLO, a single-arm study of MIRV monotherapy in later-line platinum-sensitive patients. We have also generated encouraging data in recurrent platinum-sensitive disease with the combination of MIRV plus carboplatin and are supporting investigator sponsored trials (ISTs) with this combination in a single-arm study in the neoadjuvant setting and in a randomized study comparing MIRV combined with carboplatin to standard of care in patients with recurrent platinum-sensitive disease. We also intend to initiate a single-arm Phase 2 study (0420) of this combination followed by MIRV continuation in FRα-low, medium, and high patients with platinum-sensitive disease. Results from this study and our ongoing ISTs will inform a path to the potential registration for MIRV plus carboplatin and, in parallel, could support compendia listing for this combination.

In addition, we presented mature data from our Phase 1b FORWARD II trial of MIRV plus AVASTIN® (bevacizumab) in recurrent ovarian cancer in an oral presentation at the American Society for Clinical Oncology Annual Meeting in June 2021 and believe the data could support compendia listing for this combination in close proximity to the initial monotherapy approval of MIRV. Furthermore, we recently aligned with FDA on GLORIOSA, a randomized Phase 3 study of MIRV plus bevacizumab maintenance in FRα-high recurrent platinum-sensitive disease. We expect to initiate this potentially label-enabling study in mid-2022.

Pivekimab sunirine (PVEK), formerly known as IMGN632, is an ADC comprised of a high-affinity antibody designed to target CD123 with site-specific conjugation to a DNA-alkylating payload of the novel IGN class. Our IGNs are designed to alkylate DNA without cross-linking, which has provided a broad therapeutic index in preclinical models. We are advancing PVEK in clinical trials for patients with BPDCN and AML.

BPDCN is a rare form of blood cancer, with an annual incidence of between 500 and 1,000 patients in the US. In October 2020, the FDA granted Breakthrough Therapy designation for PVEK for the treatment of patients with relapsed or refractory BPDCN. Based on feedback from the FDA, we amended our ongoing 801 Phase 2 study, known as CADENZA, to include a new cohort of up to 20 frontline BPDCN patients. We now expect to generate top-line data for this frontline cohort in the second half of 2022.

We are also conducting our 802 study for PVEK, which is a Phase 1b/2 study designed to determine the safety, tolerability, and preliminary antileukemia activity of PVEK when administered in combination with azacytidine and venetoclax to patients with relapsed and frontline CD123-positive AML. Having identified the recommended phase 2 dose for the triplet, patients are accruing in both expansion cohorts and we expect to share initial data from these cohorts at the American Society of Hematology Annual Meeting later this year.

In addition, we are advancing our earlier-stage pipeline programs. IMGC936 is an ADC in co-development with MacroGenics, Inc. that is designed to target ADAM9, an enzyme over-expressed in a range of solid tumors and implicated in tumor progression and metastasis. IMGC936 incorporates a number of innovations, including antibody engineering to extend half-life, site-specific conjugation with a fixed drug-antibody ratio to enable higher dosing, and a next-generation linker and payload designed for improved stability and bystander activity. We continue to enroll patients in the Phase 1 study for this program and expect initial data in 2022.

IMGN151 is our next generation anti-FRα product candidate in development. This ADC integrates innovation in each of its components, which we believe may enable IMGN151 to address patient populations with lower levels of FRα expression, including tumor types outside of ovarian cancer. In January 2022, we submitted an IND application to evaluate IMGN151 in a planned Phase 1 clinical trial in patients with recurrent endometrial cancer and recurrent, high-grade serous epithelial ovarian, primary peritoneal, or fallopian tube cancers. In February 2022, the FDA placed a hold on our IND application pending responses to certain chemistry, manufacturing, and controls, or CMC, information requests. We are generating data responsive to these requests and anticipate enrolling our first patient following submission of this information to the agency.

We have selectively licensed restricted access to our ADC platform technology to other companies to expand the use of our technology and to provide us with cash to fund our own product programs. These agreements typically provide the licensee with rights to use our ADC platform technology with its antibodies or related targeting vehicles to a defined

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target to develop products. The licensee is generally responsible for the development, clinical testing, manufacturing, registration, and commercialization of any resulting product candidate. As part of these agreements, we are generally entitled to receive upfront fees, potential milestone payments, and royalties on the sales of any resulting products. In February 2022, we entered into a license agreement with Eli Lilly and Company (Lilly), pursuant to which the Company granted Lilly worldwide exclusive rights to research, develop, and commercialize antibody-drug conjugates based on the Company’s novel camptothecin technology. Under the terms of the license agreement, the Company received a non-refundable upfront payment of $13.0 million, reflecting initial targets selected by Lilly. Lilly may select a pre-specified number of additional targets, with the Company eligible to receive an additional $32.5 million in exercise fees if Lilly licenses the full number of additional targets over the four year period following the effective date of the license agreement, with the potential for up to $1.7 billion in development and sales-based milestone payments if all targets are selected and all milestones are realized. In addition, the Company is entitled to receive tiered royalties, on a product-by-product basis, as a percentage of worldwide annual net sales by Lilly, based on certain net sales thresholds. For more information concerning these relationships, including their ongoing financial and accounting impact on our business, please read Note C, “Significant Collaborative Agreements,” to our consolidated financial statements included in this report.

To date, we have not generated revenues from commercial sales of internal products, and we expect to continue to incur significant operating expenses related to research and development and the potential commercialization of our portfolio over the next several years. As of March 31, 2022, we had $437.7 million in cash and cash equivalents compared to $478.8 million as of December 31, 2021.

Managing the impact of the COVID-19 pandemic

Since the first quarter of 2020, we have continued to move our clinical studies forward while adapting to meet the evolving challenges of the COVID-19 pandemic. We implemented business continuity plans in March 2020 that enabled our workforce to remain productive while working from home until mid-September 2021, at which time our workforce returned to the office. From a manufacturing and supply chain perspective, we believe we have sufficient inventory on hand for all of our ongoing and near-term studies and to support the launch of MIRV, if approved. From a regulatory perspective, since the beginning of the pandemic, we have received timely reviews of our submissions to the FDA and other health authorities covering our clinical trial applications.

The impact of COVID-19 slowed site activation and patient enrollment for both SORAYA and MIRASOL, which resulted in a limited delay in patient accrual for each of these studies.

Critical accounting policies and estimates

We prepare our consolidated financial statements in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires us to make certain estimates and judgments that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reported periods. These items are monitored and analyzed by management for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are reflected in reported results for the period in which the change occurs. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from our estimates if past experience or other assumptions do not turn out to be substantially accurate.

We believe that our application of the following accounting policies, each of which requires significant judgments and estimates on the part of management, are the most critical to aid in fully understanding and evaluating our reported financial results:

revenue recognition;
clinical trial accruals; and
stock-based compensation.

During the three months ended March 31, 2022, there were no material changes to our critical accounting policies and estimates as reported in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022.

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RESULTS OF OPERATIONS

Revenues

For the three months ended March 31, 2022, our total revenues increased to $38.1 million compared to $15.7 million for the three months ended March 31, 2021, driven by an increase in license and milestone fees, partially offset by lower non-cash royalty revenue, both of which are discussed further below.

License and milestone fees

The amount of license and milestone fees we earn is directly related to the number of our collaborators, the advancement of product candidates covered by the agreements with our collaborators, and the overall success in the clinical trials of these product candidates. As such, the amount of license and milestone fees recognized may vary significantly from quarter to quarter and year to year. License and milestone fee revenue increased $30.7 million in the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Driving the increase, pursuant to our license agreement with Huadong executed in October 2020, upon delivery of clinical supply in the three months ended March 31, 2022, we recognized $21.6 million of the $28.5 million remaining deferred revenue balance as of December 31, 2021 related to upfront and development milestone payments previously received. Additionally, pursuant to a license agreement with Lilly executed during the three months ended March 31, 2022, we recognized $9.2 million of the $13.0 million upfront payment received.

Non-cash royalty revenue related to the sale of future royalties

KADCYLA is a marketed ADC resulting from one of our development and commercialization licenses with Roche, through its Genentech unit. We receive royalty reports and payments related to sales of KADCYLA from Roche one quarter in arrears. We sold our rights to receive royalty payments on the net sales of KADCYLA through two separate transactions in 2015 and 2019. In accordance with our revenue recognition policy, $6.4 million and $15.5 million of non-cash royalties on net sales of KADCYLA were recorded and included in non-cash royalty revenue for the three months ended March 31, 2022 and 2021, respectively. The decrease in non-cash royalty revenue is a result of the aggregate royalty threshold, as outlined in the 2015 royalty purchase agreement, being met in the second quarter of 2021, effectively reducing the royalty payments under the 2015 transaction from 100% to 15% of KADCYLA royalty payments received over the remaining royalty term. Pursuant to the terms of these agreements, we expect to recognize less non-cash royalty revenue in 2022 and subsequent years as compared to 2021 and prior years. See further details regarding these agreements in Note F, “Liability Related to Sale of Future Royalties,” of the Consolidated Financial Statements.

Research and development expenses

Our research and development expenses relate to (i) research to evaluate new targets and to develop and evaluate new antibodies, linkers, and cytotoxic agents, (ii) preclinical testing of our own and, in certain instances, our collaborators’ product candidates, and the cost of our own clinical trials, (iii) development related to clinical and commercial manufacturing processes, (iv) regulatory activities, and (v) external manufacturing operations.

We do not track our research and development costs by project. Since we use our research and development resources across multiple research and development projects, we manage our research and development expenses within each of the categories listed in the following table and described in more detail below (in thousands):

    

Three Months Ended

    

March 31,

Increase/

Research and Development Expenses

    

2022

    

2021

    

(Decrease)

Preclinical and clinical testing

$

31,495

$

24,526

6,969

Process and product development

1,461

1,447

14

Manufacturing operations

11,326

8,440

2,886

Total research and development expenses

$

44,282

$

34,413

$

9,869

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Preclinical and clinical testing

Preclinical and clinical testing includes expenses related to preclinical testing of our own, and, in certain instances, our collaborators’ product candidates, regulatory activities, and the cost of clinical trials. Such expenses include the costs of personnel, third-party staffing, patient enrollment at our clinical testing sites, consultant fees, contract services, and facility expenses. In the three months ended March 31, 2022, preclinical and clinical testing expenses increased by $7.0 million compared to the three months ended March 31, 2021 due primarily to increased contract services, personnel, third-party staffing costs, and regulatory filing fees, particularly related to advancing MIRV.

Process and product development

Process and product development expenses include costs for development of clinical and commercial manufacturing processes for our own and collaborator compounds. Such expenses include the costs of personnel, third-party staffing, contract services, and facility expenses. Process and product development expenses were relatively flat for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Manufacturing operations

Manufacturing operations expense includes costs to have preclinical and clinical materials manufactured for our product candidates and quality control and quality assurance activities. Such expenses include personnel, raw materials for our preclinical studies and clinical trials, non-pivotal and pivotal development costs with contract manufacturing organizations, and facility expenses. In the three months ended March 31, 2022, manufacturing operations expense increased $2.9 million compared to the three months ended March 31, 2021 due primarily to increases in external manufacturing activity across our programs.

Selling, general and administrative expenses

Selling, general and administrative expenses consist primarily of personnel-related costs, including stock-based compensation, for commercial operations and for personnel in executive, finance, accounting, business development, information technology, legal, and human resources functions. Other significant costs include facility costs not otherwise included in research and development expenses, commercial development activities, legal fees related to intellectual property and corporate matters, and fees for accounting and consulting services.

Selling, general and administrative expenses increased $6.4 million to $16.6 million in the three months ended March 31, 2022 compared to the three months ended March 31, 2021, primarily due to building our commercial capabilities in anticipation of a potential U.S. launch of MIRV in the second half of 2022.

Non-cash interest expense on liability related to the sale of future royalties

In 2015, IRH purchased our right to receive 100% of the royalty payments on commercial sales of KADCYLA arising under our development and commercialization license with Genentech, subject to a residual cap. In January 2019, OMERS purchased IRH’s right to the royalties the Company previously sold in 2015. As described in Note E, “Liability Related to Sale of Future Royalties,” to our consolidated financial statements included in this report, this royalty sale transaction has been recorded as a liability that amortizes over the estimated royalty payment period as KADCYLA royalties are remitted directly to the purchaser. During the three months ended March 31, 2022 and 2021, we recorded $1.2 million and $4.6 million, respectively, of non-cash interest expense, which includes amortization of deferred financing costs. The decrease was a result of a lower average royalty liability balance for the period and the KADCYLA royalty threshold being met in the second quarter of 2021, effectively reducing the royalty payments under the 2015 transaction from 100% to 15% of KADCYLA royalty payments received over the remaining royalty term.

LIQUIDITY AND CAPITAL RESOURCES

The tables below summarize our cash and cash equivalents, working capital, and shareholders’ equity as of March 31, 2022 and December 31, 2021, and cash flow activities for the three months ended March 31, 2022 and 2021 (in thousands):

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As of 

March 31,

December 31,

    

2022

    

2021

Cash and cash equivalents

    

$

437,661

    

$

478,750

Working capital

 

372,600

 

399,054

Shareholders’ equity

 

306,468

 

325,586

Three Months Ended March 31,

    

2022

    

2021

Cash used for operating activities

    

$

(41,402)

    

$

(44,621)

Cash used for investing activities

 

(307)

 

(893)

Cash provided by financing activities

 

620

 

34,778

Cash flows

We require cash to fund our operating expenses, including the advancement of our clinical programs and to make capital expenditures. Historically, we have funded our cash requirements primarily through equity and convertible debt financings in private and public markets and payments from our collaborators, including license fees, milestone payments, research funding, and royalties. We have also monetized our rights to receive royalties on KADCYLA for upfront consideration. As of March 31, 2022, we had $437.7 million in cash and cash equivalents. Net cash used for operations was $41.4 million and $44.6 million for the three months ended March 31, 2022 and 2021, respectively. The principal use of cash for operating activities for both periods presented was to fund our net loss, adjusted for non-cash items, with the three months ended March 31, 2022 benefiting from a $13.0 million upfront payment pursuant to a license agreement with Lilly. 

Net cash used for investing activities was $0.3 million and $0.9 million for the three months ended March 31, 2022 and 2021, respectively, consisting of cash outflows for capital expenditures in both periods, including computer and office equipment and dedicated equipment at third-party manufacturing vendors.

Net cash provided by financing activities was $0.6 million and $34.8 million for the three months ended March 31, 2022 and 2021, respectively. Net cash provided by financing activities for the three months ended March 31, 2022 and 2021 includes $0.6 million and $1.3 million, respectively, of proceeds from the exercise of stock options. Additionally, in the three months ended March 31, 2021, we sold 4,544,424 shares of our common stock under our Open Market Sale AgreementSM (Sale Agreement) with Jefferies, LLC as sales agent, dated December 18, 2020, generating net proceeds of $33.5 million.

Future Capital Requirements

We have significant future capital requirements including:

significant expected operating expenses to conduct research and development activities and to potentially commercialize our portfolio;
noncancelable in-process and future manufacturing obligations; and
substantial facility lease obligations as described in Note H, “Leases,” included in this report.

We anticipate that our current capital resources will enable us to meet our operational expenses and capital requirements for more than twelve months after the date of this report. We may raise additional funds through equity, debt, and other financings or generate revenues from collaborators through a combination of upfront license payments, milestone payments, royalty payments, and research funding. We cannot provide assurance, however, that we will be able to obtain additional debt, equity, or other financing or generate revenues from collaborators on terms acceptable to us or at all. Should we or our partners not meet some or all of the terms and conditions of our various collaboration agreements or if we are not successful in securing future collaboration agreements, we may elect or be required to secure alternative financing arrangements, and/or defer or limit some or all of our research, development, and/or clinical projects.

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Recent Accounting Pronouncements

The information set forth under Note B, “Summary of Significant Accounting Policies,” to our consolidated financial statements included in this report under the caption “Recently Adopted Accounting Pronouncements” is incorporated herein by reference.

Third-Party Trademarks

KADCYLA and AVASTIN are registered trademarks of Genentech, Inc.

ITEM 3.     Quantitative and Qualitative Disclosure about Market Risk

Our market risks, and the ways we manage them, are summarized in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022 and there have been no material changes to our market risks, or to our management of such risks, as set forth in such Annual Report on Form 10-K.

ITEM 4.     Controls and Procedures

(a)

Disclosure Controls and Procedures

Our management, with the participation of our principal executive and principal financial officers, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our principal executive and principal financial officers have concluded that, as of the end of such period, our disclosure controls and procedures were effective.

(b)

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1A.   Risk Factors

In addition to the other information set forth in this report, you should carefully review and consider the information regarding certain factors that could materially affect our business, financial condition, or future results set forth under Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 28, 2022. There have been no material changes from the factors disclosed in our Annual Report on Form 10-K, other than the update to the risk factor below. We may, however, disclose changes to such risk factors, or disclose additional risk factors, from time to time in our future filings with the SEC.

Clinical trials for our product candidates and those of our collaborators will be lengthy and expensive, and their outcome is uncertain.

Before obtaining regulatory approval for the commercial sale of any product candidates, we and our collaborators must demonstrate through clinical testing that our product candidates are safe and effective for use in humans. Conducting clinical trials is a time-consuming, expensive, and uncertain process and typically requires years to complete. In our industry, the results from preclinical studies and early clinical trials often are not predictive of results obtained in later-stage clinical trials. Some compounds that have shown promising results in preclinical studies or early clinical trials subsequently fail to establish sufficient safety and efficacy data necessary to obtain regulatory approval. For example, despite encouraging results from earlier clinical trials of mirvetuximab, our FORWARD I Phase 3 clinical trial evaluating mirvetuximab compared to chemotherapy in women with FRα-positive, platinum-resistant ovarian cancer, did not meet the primary endpoint in either the entire treatment population or the pre-specified high FRα expression population. Based on post hoc exploratory analyses of the FORWARD I results and consultations with the FDA, we implemented two new

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trials of mirvetuximab, SORAYA and MIRASOL, to support the potential approval of mirvetuximab as a monotherapy. We reported positive top-line data from our SORAYA trial, however, results from our ongoing MIRASOL study may not show positive results consistent with our SORAYA trial, post hoc exploratory analyses of the FORWARD I results, or earlier successful trials of mirvetuximab as monotherapy, which would cause significant harm to our business and future prospects.

Before we can commence clinical trials for a therapeutic candidate, we must conduct extensive preclinical testing and studies and submit an IND to FDA. We cannot be sure that submission of an IND will result in the FDA allowing our clinical trials to begin on the timelines we expect, if at all, as FDA may require additional preclinical, toxicology, or other in vivo or in vitro data to support the IND. Additionally, at any time during the clinical trials, we, our collaborators, or the FDA or other regulatory authority might delay or halt any clinical trials of our product candidates for various reasons, including:

occurrence of unacceptable toxicities or side effects;
ineffectiveness of the product candidate;
insufficient drug supply, including delays in obtaining supplies/materials necessary for manufacturing such drugs;
negative or inconclusive results from the clinical trials, or results that necessitate additional nonclinical studies or clinical trials;
delays in obtaining or maintaining required approvals from institutions, review boards, or other reviewing entities at clinical sites;
delays in patient enrollment;
insufficient funding or a reprioritization of financial or other resources;
our or our collaborators’ inability to develop and obtain approval for any companion in vitro diagnostic devices that the FDA or other regulatory authority may conclude must be used with such product candidates to ensure their safe use; or
other reasons that are internal to the businesses of our collaborators and third-party suppliers, which they may not share with us.

In addition, the conflict involving Russia and Ukraine has and may continue to negatively impact our contract research organizations and clinical investigators’ ability to conduct certain of our trials, including MIRASOL, in these and other Eastern European countries and may prevent us from obtaining data on patients already enrolled at sites in these countries. Any failure or substantial delay in successfully completing clinical trials and obtaining regulatory approval for our product candidates or our collaborators’ product candidates could severely harm our business.

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ITEM 6.      Exhibits

Exhibit No.

    

Description

10.1

*

License Agreement dated as of February 14, 2022 by and between the Registrant and Eli Lilly and Company

31.1

Certification of the principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of the principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32

Certifications of the principal executive officer and the principal financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

Financial statements from the quarterly report on Form 10-Q of ImmunoGen, Inc. for the quarter ended March 31, 2022 formatted in inline XBRL (eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations and Comprehensive Loss; (iii) the Consolidated Statements of Shareholder’s Equity (Deficit); (iv) the Consolidated Statements of Cash Flows; and (v) the Notes to Consolidated Financial Statements

104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

*

Certain confidential portions of this exhibit were omitted by means of marking such portions with brackets [***] because the identified confidential portions (i) are not material and (ii) is the type of information the Registrant treats as private or confidential.

Furnished, not filed.

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Table of Contents

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

ImmunoGen, Inc.

Date: May 6, 2022

By:

/s/ Mark J. Enyedy

Mark J. Enyedy

President and Chief Executive Officer (Principal Executive Officer)

Date: May 6, 2022

By:

/s/ Susan Altschuller, Ph.D.

Susan Altschuller, Ph.D.

Senior Vice President and Chief Financial Officer (Principal Financial Officer)

26

Exhibit 10.1

Certain identified information has been excluded from the exhibit because it is both (i) not material and (ii) is the type of information that the registrant treats as private or confidential. Triple asterisks denote omissions.

LICENSE AGREEMENT

by and between

IMMUNOGEN, INC.

AND

Eli Lilly and Company


TABLE OF CONTENTS

Article 1 DEFINITIONS1

Article 2 TARGET SELECTION15

2.1Pre-Signing Lilly Targets15

2.2Additional Targets16

2.3Replacement Targets16

2.4[***]16

2.5Target Termination18

2.6Limit on Number of Targets18

Article 3 GRANT OF LICENSE18

3.1License to Lilly18

3.2Sublicensing & Subcontracting Rights18

3.3Retained Rights19

3.4No Other Rights19

3.5In-License Agreements19

3.6Rights in Bankruptcy20

Article 4 DEVELOPMENT, COMMERCIALIZATION AND MANUFACTURING20

4.1Development20

4.2Commercialization20

4.3Manufacturing21

4.4Technology Transfer21

4.5Records and Audits.21

Article 5 REGULATORY21

5.1Regulatory Activities21

5.2Safety and Adverse Event Reporting22

i


5.3Product Recalls22

Article 6 UPFRONT FEE; MILESTONES AND ROYALTIES; PAYMENTS22

6.1Upfront Fee22

6.2Additional Target Fee22

6.3Development Milestone Payments22

6.4Commercial Milestone Payments23

6.5Sales-Based Milestone Payments24

6.6Royalties25

6.7Royalty Term26

6.8Royalty and Milestone Adjustments26

6.9Reports; Payment of Royalty27

6.10Financial Records27

6.11Audit; Audit Dispute27

6.12Accounting28

6.13Taxes28

6.14Overdue Payments28

Article 7 EXCLUSIVITY28

7.1ImmunoGen Exclusivity Obligation28

7.2Transactions Involving Competing Programs28

Article 8 INTELLECTUAL PROPERTY RIGHTS29

8.1Ownership of Intellectual Property; Disclosure29

8.2Patent Prosecution and Maintenance30

8.3Enforcement of Patent Rights31

8.4Response to Biosimilar Applicants32

8.5Defense of Claims35

ii


8.6Product Trademarks35

Article 9 CONFIDENTIALITY36

9.1Confidentiality Obligations36

9.2Permitted Disclosures36

9.3Use of Name38

9.4Public Announcements38

9.5Publications38

9.6Return of Confidential Information39

9.7[***]39

9.8Survival39

Article 10 REPRESENTATIONS AND WARRANTIES39

10.1Representations and Warranties of Both Parties39

10.2Representations and Warranties of ImmunoGen40

10.3Additional Mutual Representations, Warranties, and Covenants40

10.4Compliance41

10.5Disclaimer43

Article 11 INDEMNIFICATION43

11.1Indemnification by Lilly43

11.2Indemnification by ImmunoGen44

11.3Conditions to Indemnification44

11.4[***]45

11.5Limitation of Liability45

Article 12 TERM AND TERMINATION45

12.1Term45

12.2Termination45

iii


12.3Effects of Termination46

12.4Accrued Rights; Surviving Provisions of the Agreement46

Article 13 MISCELLANEOUS47

13.1Governing Law47

13.2Dispute Resolution47

13.3Assignment48

13.4Force Majeure48

13.5Notices49

13.6Export Clause50

13.7Waiver; Non-Exclusion of Remedies50

13.8Further Assurance50

13.9Severability50

13.10Equitable Relief51

13.11Entire Agreement; Amendments51

13.12Relationship of the Parties51

13.13Headings; Construction; Interpretation51

13.14Books and Records52

13.15English Language52

13.16Parties in Interest52

13.17Counterparts52

SCHEDULES

Schedule 1.79ImmunoGen Patents

Schedule 4.4ImmunoGen Material

Schedule 2.1Pre-Signing Lilly Targets

Schedule 9.4Public Announcement

iv


LICENSE AGREEMENT

This LICENSE AGREEMENT (this “Agreement”) is entered into and made effective as of February 14, 2022 (the “Effective Date”), by and between ImmunoGen, Inc., a Massachusetts corporation, having its principal place of business at 830 Winter Street, Waltham, Massachusetts 02451 (“ImmunoGen”), and Eli Lilly and Company, an Indiana corporation, having its principal place of business at Lilly Corporate Center, Indianapolis, Indiana 46285 (“Lilly”). ImmunoGen and Lilly shall be referred to herein individually as a “Party” and collectively as the “Parties”.

RECITALS

WHEREAS, ImmunoGen is the owner of or otherwise controls certain rights in proprietary technology and know-how relating to camptothecin-based antibody drug conjugates;

WHEREAS, Lilly is a pharmaceutical company engaged in the research, development, manufacturing, marketing and distribution of pharmaceutical products, including therapeutic products, and

WHEREAS, pursuant to the terms and conditions set forth herein, Lilly desires to obtain, and ImmunoGen desires to grant to Lilly, a license under such proprietary technology and know-how for the research, development, manufacturing and commercialization of Products.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows:

Article 1
DEFINITIONS

As used in this Agreement, the following terms shall have the meanings set forth in this Article 1 (Definitions) unless context dictates otherwise:

1.1Accounting Standards” means, with respect to a Party or its Affiliates or its or their (sub)licensees/Sublicensees, United States generally accepted accounting principles, consistently applied.
1.2Achieved Milestone Event” has the meaning set forth in Section 6.3 (Development Milestone Payments).
1.3Acquiror” has the meaning set forth in Section 1.38 (Change of Control).
1.4Acquisition Transaction” has the meaning set forth in Section 8.1.4 (Acquiror IP).
1.5ADC” or “Antibody-Drug Conjugate” means a compound that incorporates, is comprised of or is otherwise derived from an Antibody conjugated to a therapeutic moiety. The means by which an Antibody is conjugated [***].

1


1.6Additional Target” has the meaning set forth in Section 2.2 (Additional Target Selection Mechanism).
1.7Affiliate” means, with respect to a Person, any Person that, directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with such first Person for so long as such Person controls, is controlled by or is under common control with such first Person, regardless of whether such Affiliate is or becomes an Affiliate on or after the Effective Date. A Person shall be deemed to “control” another Person if it (a) owns, directly or indirectly, beneficially or legally, more than fifty percent (50%) of the outstanding voting securities or capital stock of such other Person, or has other comparable ownership interests with respect to any Person other than a corporation; or (b) has the power, whether pursuant to contract, ownership of securities or otherwise, to direct the management and policies of such other Person.
1.8Annual Net Sales” means, with respect to a Product, the total Net Sales of such Product in the countries in the Territory in which the Royalty Term has not expired in a particular Calendar Year.
1.9Annual Net Sales Milestone Threshold” has the meaning set forth in Section 0 (Sales-Based Milestone Payments).
1.10Annual Net Sales-Based Milestone Payment” has the meaning set forth in Section 0 (Sales-Based Milestone Payments).
1.11Annual Net Sales-Based Milestone Table” has the meaning set forth in Section 0 (Sales-Based Milestone Payments).
1.12Antibody” means a molecule which comprises or contains: [***].
1.13Applicant” has the meaning set forth in Section 8.4.2 (Access to Confidential Information).
1.14Applicant Response” has the meaning set forth in Section 8.4.3(b) (Disclosure of Applicant Response).
1.15[***].
1.16At-Risk Target” means [***].
1.17Availability Notice” has the meaning set forth in Section 2.4.2(b) (Availability Notice).
1.18Available” means, with respect to a Target, that such Target is not an Unavailable Target or At-Risk Target.
1.19Bayh-Dole Act” has the meaning set forth in Section 10.2.6 (Representations and Warranties of ImmunoGen).
1.20Biosimilar Application” has the meaning set forth in Section 8.4.1 (Notice).

2


1.21BLA” means a Biologic License Application (within the meaning of 21 C.F.R. 601.2), or any corresponding foreign application in the Territory, including, with respect to the European Union, a Marketing Authorization Application filed with the EMA pursuant to the Centralized Approval Procedure or with the applicable Regulatory Authority of a country in Europe with respect to the mutual recognition or any other national approval procedure.
1.22Blocking Agreement” has the meaning set forth in Section 2.4.1 ([***]).
1.23BPCIA” has the meaning set forth in Section 8.4.1 (Notice).
1.24Breaching Party” has the meaning set forth in Section 12.2.1 (Termination for Cause).
1.25Business Daymeans a day other than a Saturday or Sunday on which banking institutions in Indianapolis, Indiana and Boston, Massachusetts are open for business.
1.26Calendar Quarter” means a period of three (3) consecutive months ending on the last day of March, June, September, or December, respectively, except that the first Calendar Quarter of the Term shall commence on the Effective Date and end on the day immediately prior to the first to occur of January 1, April 1, July 1 or October 1 after the Effective Date and the last Calendar Quarter shall end on the last day of the Term.
1.27Calendar Year” means a period of twelve (12) consecutive months beginning on January 1 and ending on December 31, except that the first Calendar Year of the Term shall commence on the Effective Date and end on December 31 of the year in which the Effective Date occurs and the last Calendar Year of the Term shall commence on January 1 of the year in which the Term ends and end on the last day of the Term.
1.28Camptothecin” means [***].
1.29CDA” means that certain Confidentiality Agreement, by and between the Parties, dated as of [***].
1.30cGCP” means all applicable current Good Clinical Practice standards for the design, conduct, performance, monitoring, auditing, recording, analyses and reporting of Clinical Trials, including, as applicable, (a) as set forth in the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (“ICH”) E6 and any other guidelines for good clinical practice for trials on medicinal products in the Territory, (b) the Declaration of Helsinki (2004) as last amended at the 52nd World Medical Association in October 2000 and any further amendments or clarifications thereto, (c) U.S. Code of Federal Regulations Title 21, Parts 50, 54, 56, 312 and 314, as may be amended from time to time, and (d) the equivalent Applicable Laws in any relevant country, each as may be amended and applicable from time to time and in each case, that provide for, among other things, assurance that the clinical data and reported results are credible and accurate and protect the rights, integrity, and confidentiality of trial subjects.
1.31cGLP” means the then-current standards for laboratory activities for pharmaceuticals, as set forth in the FDA’s Good Laboratory Practice regulations as defined in 21

3


C.F.R. Part 58, the Council Directive 87/18/EEC, as amended, the principles for Good Laboratory Practice and/or the Good Laboratory Practice principles of the Organization for Economic Co-Operation and Development (“OECD”), and such standards of good laboratory practice as are required by the European Union and other organizations and governmental agencies in countries in which a Product is intended to be sold, to the extent such standards are not less stringent than United States Good Laboratory Practice.
1.32cGMP” means the current Good Manufacturing Practices including, as applicable, (a) the principles detailed in the U.S. Current Good Manufacturing Practices, 21 C.F.R. Parts 4, 210, 211, 601, 610 and 820, (b) European Directive 2003/94/EC and Eudralex 4, (c) the principles detailed in the WHO TRS 986 Annex 2, TRS 961 Annex 6, TRS 957 Annex 2 and TRS 999 Annex 2, (d) ICH Q7 guidelines, and (e) the equivalent Applicable Laws in any relevant country, each as may be amended and applicable from time to time.
1.33Challenge” means any challenge to the patentability, validity, or enforceability of any of the ImmunoGen Patents, including: (a) [***]; (b) [***]; or (c) [***].
1.34Challenge Jurisdiction” has the meaning set forth in Section 6.8.5 (Effect of Patent Challenge).
1.35Challenged Patent Rights” has the meaning set forth in Section 6.8.5 (Effect of Patent Challenge).
1.36[***].
1.37[***].
1.38Change of Controlmeans with respect to either Party: (a) the acquisition by a Third Party, whether in one transaction or a series of related transactions, of direct or indirect beneficial ownership of more than fifty percent (50%) of the outstanding voting equity securities of such Party; (b) the acquisition by a Third Party, whether in one transaction or a series of related transactions of majority control of the board of directors or equivalent governing body of such Party or the ability to cause the direction of the management or allocation of corporate resources of such Party; (c) a merger or consolidation involving such Party, as a result of which a Third Party acquires direct or indirect beneficial ownership of more than fifty percent (50%) of the voting power of the surviving entity immediately after such merger, reorganization or consolidation; or (d) a sale of all or substantially all of the assets of such Party in one transaction or a series of related transactions to a Third Party. The acquiring or combining Third Party in any of (a), (b), (c) or (d), and any of such Third Party’s Affiliates (whether in existence as of or at any time following the applicable transaction, but other than the acquired Party and its Affiliates as in existence prior to the applicable transaction or Affiliates the acquired Party controls after the applicable transaction) are referred to collectively herein as the “Acquiror”.
1.39Clearance Notice” has the meaning set forth in Section 2.4.2(d) (ImmunoGen Clearance Notice).

4


1.40Clinical Study” means a Phase I Clinical Study, Phase II Clinical Study, Phase III Clinical Study or any other study in which human subjects or patients are dosed with a drug, whether approved or investigational.
1.41Combination Producthas the meaning set forth in Section 1.109 (Net Sales).
1.42Commercial Milestone Event” has the meaning set forth in Section 6.4 (Commercial Milestone Payments).
1.43Commercial Milestone Payment” has the meaning set forth in Section 6.4 (Commercial Milestone Payments).
1.44Commercialization” and “Commercializemeans any and all activities related to the preparation for sale of, offering for sale of, or sale of a Compound or Product, including activities related to marketing, promoting, distributing, importing and exporting such Compound or Product, [***] and interacting with Regulatory Authorities or other Governmental Authorities regarding any of the foregoing. When used as a verb, “to Commercialize” and “Commercializing” means to engage in Commercialization, and “Commercialized” has a corresponding meaning. Notwithstanding the foregoing, Commercialization does not include any Development or Manufacturing activities.
1.45Commercially Reasonable Efforts” of a Party means that level of efforts and resources commonly applied by such Party to carry out a particular task or obligation consistent with the general practice followed by such Party relating to other pharmaceutical compounds, products or therapies owned by it, or to which it has exclusive rights, which are of similar market potential at a similar stage in their development or product life [***].
1.46Competing Program” has the meaning set forth in Section 7.2.1 (Acquisition of Existing Competing Program).
1.47Compound” means [***].
1.48Confidential Information” means any information, data or materials (including, with respect to ImmunoGen, the ImmunoGen Material) provided orally, visually, in writing or other form by or on behalf of one (1) Party (or an Affiliate or representative of such Party) to the other Party (or to an Affiliate or representative of such Party) in connection with this Agreement, whether prior to, on, or after the Effective Date, including information relating to the terms of this Agreement, a Compound or any Product (including Regulatory Filings), any Exploitation of a Compound or any Product, any Know-How with respect thereto developed by or on behalf of the disclosing Party or its Affiliates, or the scientific, regulatory or business affairs or other activities of either Party. In addition, each Party’s confidential information under the CDA shall be deemed to be such Party’s Confidential Information under this Agreement. Notwithstanding the foregoing, [***].
1.49Control” means, subject to Section 8.1.4 (Acquiror IP), with respect to a Person and any Regulatory Filings, material, Know-How, Patent Right or other intellectual property right, the possession by such Person or any of its Affiliates of the right, whether through ownership or

5


license (other than by a license under this Agreement), to grant the licenses, sublicenses or other rights as provided herein; [***].
1.50CPR” has the meaning set forth in Section 13.2.3(a).
1.51Developmentmeans all activities related to research, preclinical and other nonclinical testing, test method development and stability testing, toxicology, quality assurance/quality control, Clinical Studies, statistical analysis and report writing, the preparation and submission of Regulatory Approval Applications and applications for Pricing Approval, regulatory affairs with respect to the foregoing and all other activities necessary or reasonably useful or otherwise requested or required by a Regulatory Authority as a condition or in support of obtaining or maintaining a Regulatory Approval or Pricing Approval. When used as a verb, “Develop” means to engage in Development. Notwithstanding the foregoing, Development does not include any Commercialization or Manufacturing activities.
1.52Development Milestone Event” has the meaning set forth in Section 6.3 (Development Milestone Payments).
1.53Development Milestone Payment” has the meaning set forth in Section 6.3 (Development Milestone Payments).
1.54Directed Against” means, [***].
1.55Dispute” has the meaning set forth in Section 13.2 (Dispute Resolution).
1.56Divestiture” has the meaning set forth in Section 7.2.1 (Acquisition of Existing Competing Program).
1.57Dollars” or “$” means the legal tender of the U.S.
1.58Election Period” has the meaning set forth in Section 2.4.2(c) (Available Targets).
1.59EMA” means the European Medicines Agency, and any successor entity thereto.
1.60[***].
1.61Executive Officers” means CEO, or his or her designee, in the case of ImmunoGen, and the chief executive officer of Loxo Oncology at Lilly, or his or her designee, in the case of Lilly.
1.62[***].
1.63Exploit” or “Exploitation” means to make, have made, import, export, use, have used, sell, have sold, or offer for sale, including to research, Develop, Commercialize, register, modify, enhance, improve, Manufacture, have Manufactured, hold, or keep (whether for disposal or otherwise), formulate, optimize, have used, export, transport, distribute, promote, market, have sold or otherwise dispose of.

6


1.64FDA” means the United States Food and Drug Administration, and any successor entity thereto.
1.65FFDCA means the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 301 et seq., as amended from time to time, together with any rules, regulations and requirements promulgated thereunder (including all additions, supplements, extensions, and modifications thereto).
1.66Field” means any and all uses, including any and all uses for the diagnosis, prevention, amelioration, and treatment of any disease or medical condition in humans and animals, [***].
1.67First Commercial Sale” means the first sale of a Product, by or under the authority of Lilly, an Affiliate of Lilly, or their Sublicensees to a Third Party in a country following Regulatory Approval and, where applicable, Pricing Approval of such Product in that country or, if no such Regulatory Approval, Pricing Approval or similar approval is required, the date on which such Product is first commercially launched in such country; [***].
1.68Foreground Platform IP” means Foreground Platform Know-How and Foreground Platform Patents.
1.69Foreground Platform Know-How” means [***].
1.70Foreground Platform Patent” means any Patent Right that claims any Foreground Platform Know-How.
1.71FTE Rate” means the annual rate of [***].
1.72“[***]” has the meaning set forth in Section 2.4.1 ([***]).
1.73Generic Equivalent” means, with respect to a Product in a given country, any biopharmaceutical product that is sold by a Third Party that is not a Sublicensee of Lilly or its Affiliates and such Third Party product is determined by the applicable Regulatory Authority in such country as being a substitution to, a biosimilar to, or interchangeable with, such Product under applicable law in such country.
1.74Governmental Authority” means any multinational, federal, national, state, provincial, local or other entity, office, commission, bureau, agency, political subdivision, instrumentality, branch, department, authority, board, court, arbitral or other tribunal exercising executive, judicial, legislative, police, regulatory, administrative or taxing authority or functions of any nature pertaining to government.
1.75Government Official” has the meaning set forth in Section 10.4.8 (Prohibited Conduct).
1.76Immediate Patent Infringement Action” has the meaning set forth in Section 8.4.3(e) (Negotiation; ImmunoGen Rights).

7


1.77ImmunoGen Know-How” means all Know-How that (a) is Controlled by ImmunoGen as of the Effective Date or during the Term, (b) is related to the ImmunoGen Platform, and (c) is necessary or reasonably useful to Develop, Manufacture, have Manufactured, use, Commercialize or otherwise Exploit the Compounds and Products in the Field in the Territory.
1.78ImmunoGen Material” means the material specified in Schedule 4.4 (ImmunoGen Material), being [***], provided for use by Lilly solely in respect of those activities set forth in Schedule 4.4 (ImmunoGen Material). For clarity, any derivative, progeny or improvement of any ImmunoGen Material made by either Party in connection with the activities under this Agreement shall be considered to be ImmunoGen Material.
1.79ImmunoGen Patents” means all Patent Rights Controlled by ImmunoGen as of the Effective Date or during the Term that are (a) related to the ImmunoGen Platform and (b) necessary or reasonably useful to Develop, Manufacture, have Manufactured, use, Commercialize or otherwise Exploit the Compounds and Products in the Field in the Territory. Without limiting the foregoing, the ImmunoGen Patents as of the Effective Date are set forth in Schedule 1.79 (ImmunoGen Patents).
1.80ImmunoGen Platform” means ImmunoGen’s proprietary camptothecin-based ADC technology, including but not limited to: [***].
1.81ImmunoGen Technology” means the ImmunoGen Patents, ImmunoGen Know-How, and Foreground Platform IP.
1.82ImmunoGen Indemnitees” has the meaning set forth in Section 11.1 (Indemnification by Lilly).
1.83In-License Agreement” means any agreement between ImmunoGen or its Affiliate, on one hand, and a Third Party on the other hand under which Lilly is granted a sublicense or other right under this Agreement as provided in Section 3.5 (In-License Agreements).
1.84IND” means an application filed with a Regulatory Authority for authorization to commence Clinical Studies, including (a) an Investigational New Drug Application as defined in the FFDCA or any successor application or procedure filed with the FDA, (b) any equivalent of a United States IND in other countries or regulatory jurisdictions, (i.e., clinical trial application (CTA)) and (c) all supplements, amendments, variations, extensions and renewals thereof that may be filed with respect to the foregoing.
1.85Indemnified Party” has the meaning set forth in Section 11.3 (Conditions to Indemnification).
1.86Indemnifying Party” has the meaning set forth in Section 11.3 (Conditions to Indemnification).
1.87Indication” means any intended use of a Product [***].

8


1.88Infringed Patent List” has the meaning set forth in Section 8.4.3(e) (Negotiation; ImmunoGen Rights).
1.89Intellectual Property” has the meaning set forth in Section 3.6.1 (Section 365(n) of the Bankruptcy Code).
1.90Internal Compliance Codes” has the meaning set forth in Section 10.4.4 (Compliance with Internal Compliance Codes).
1.91Internal Program” has the meaning set forth in Section 2.4.1 ([***]).
1.92Japan PMDA” means Japan’s Pharmaceuticals and Medical Devices Agency and any successor agency or authority having substantially the same function.
1.93Know-How” means all knowledge, materials and information of a technical, scientific, business and other nature, including inventions, know-how, technology, means, methods, processes, practices, formulae, instructions, skills, techniques, procedures, experiences, ideas, technical assistance, designs, drawings, assembly procedures, computer programs, apparatuses, specifications, data, results and other material, Regulatory Filings, and other biological, chemical, pharmacological, toxicological, pharmaceutical, physical and analytical, preclinical, clinical, safety, manufacturing and quality control data and information, including study designs and protocols, reagents (e.g., plasmids, proteins, cell lines, assays and compounds) and biological methodology; in each case (whether or not confidential, proprietary, patented or patentable, of commercial advantage or not) in written, electronic or any other form now known or hereafter developed.
1.94Lawmeans federal, state, local, national and supranational laws, statutes, rules, and regulations, including any rules, regulations, regulatory guidelines, or other requirements of the Regulatory Authorities, major national securities exchanges or major securities listing organizations, that may be in effect from time to time during the Term and applicable to a particular activity or country or other jurisdiction hereunder.
1.95License” has the meaning set forth in Section 3.1 (License to Lilly).
1.96Lilly Competitor” means a company that: [***].
1.97Lilly Standard Exchange Rate Methodology” means Lilly’s then-current standard exchange rate methodology, which is in accordance with Lilly’s Accounting Standards applied in its external reporting for the conversion of foreign currency sales into Dollars or, in the case of Sublicensees, such similar methodology, consistently applied.
1.98Lilly Background IP” means [***].
1.99Lilly Response” has the meaning set forth in Section 8.4.3(c) (Preparation of Lilly Response).
1.100Lilly Target” means each (a) Pre-Signing Lilly Target, (b) Additional Target, and (c) Replacement Target.

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1.101Linker” means any compound or composition that is useful for linking: [***]
1.102Loss of Market Exclusivity” means with respect to any Product in any country, that (a) [***]; and (b) [***].
1.103Losses” has the meaning set forth in Section 11.1 (Indemnification by Lilly).
1.104Major European Market” means each of the following: [***].
1.105Manufacture” and “Manufacturing” means all activities related to the synthesis, making, production, processing, purifying, formulating, filling, finishing, packaging, labeling, shipping, testing, and holding of any Compound, Product, or any intermediate thereof, including process development, process qualification and validation, scale-up, preclinical, clinical and commercial production and analytic development, product characterization, stability testing, quality assurance, and quality control. Notwithstanding the foregoing, Manufacturing does not include any Commercialization or Development activities.
1.106Milestone Payments” means the Development Milestone Payments, the Commercial Milestone Payments, and the Annual Net Sales-Based Milestone Payments.
1.107Monies” has the meaning set forth in Section 8.3.5 (Recovery).
1.108Negotiation Period” has the meaning set forth in Section 8.4.3(e) (Negotiation; ImmunoGen Rights).
1.109Net Salesmeans, with respect to a particular Product in a particular period, the gross amount [***] Lilly or its Affiliates or Sublicensees to unrelated Third Parties (excluding any sublicensee), as determined in accordance with Lilly’s Accounting Standards, less:
1.109.1[***];
1.109.2[***];
1.109.3[***];
1.109.4[***];
1.109.5[***];
1.109.6[***];
1.109.7[***]; and
1.109.8[***]/

[***].

In the event that the Product is sold as part of a Combination Product (where “Combination Product” means any pharmaceutical product which comprises the Product and other active

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compound(s) or ingredients), the Net Sales of the Product, for the purposes of determining royalty and commercial milestone payments, shall be determined by [***].

In the event that the weighted average per unit sale price of the Product can be determined but the weighted average per unit sale price of the other compound(s) or ingredients cannot be determined, Net Sales for purposes of determining royalty payments shall be [***].

In the event that the weighted average per unit sale price of the other compound(s) or ingredients can be determined but the weighted average per unit sale price of the Product in similar volumes and of the same class purity, potency and dosage form as in the Combination Product cannot be determined, Net Sales for purposes of determining royalty payments shall be [***].

In the event that the weighted average per unit sale price of both the Product and the other compound(s) or ingredient(s) in the Combination Product cannot be determined, the Net Sales of the Product shall be deemed to be equal to [***] of the Net Sales of the Combination Product.

The weighted average per unit sale price for a Product, other compound(s) or ingredients, or Combination Product shall be calculated [***] and such price shall be used during all applicable royalty reporting periods for the entire following [***]. When determining the weighted average per unit sale price of a Product, other compound(s) or ingredients, or Combination Product, the weighted average per unit sale price shall be calculated by dividing the sales dollars (translated into U.S. Dollars) by the units of active ingredient sold during the [***] of the preceding [***] for the respective Product, other compound(s) or ingredients, or Combination Product. In the initial [***], a forecasted weighted average per unit sale price will be used for the Product, other compound(s) or ingredients, or Combination Product. Any over or under payment due to a difference between forecasted and actual weighted average per unit sale prices will be paid or credited in the first royalty payment of the following [***]. For the avoidance of doubt, for the purposes of calculating the Net Sales of a Product, an ADC shall constitute a single Product, and not a Combination Product.

1.110Non-Breaching Party” has the meaning set forth in Section 12.2.1 (Termination for Cause).
1.111Party-Specific Regulations” has the meaning set forth in Section 10.4.3 (Compliance with Party-Specific Regulations).
1.112Patent Rightmeans (a) all national, regional and international patents and patent applications, including provisional patent applications and rights to claim priority from any of these patents or applications, (b) all patent applications filed either from such patents, patent applications or provisional applications or from an application claiming priority from either of these, including divisionals, continuations, continuations in part, provisionals, converted provisionals and continued prosecution applications, (c) any and all patents that have issued or in the future issue from the foregoing patent applications ((a) and (b)), including utility models, petty patents and design patents and certificates of invention, (d) any and all extensions or restorations by existing or future extension or restoration mechanisms, including revalidations, reissues, reexaminations and extensions (including any patent term extensions, supplementary protection certificates, pediatric exclusivity periods and the like) of the foregoing patents or patent

11


applications ((a), (b), and (c)), and (e) any similar rights, including so-called pipeline protection or any importation, revalidation, confirmation or introduction patent or registration patent or patent of additions to any of such foregoing patent applications and patents.
1.113Person” means any individual, partnership, joint venture, limited liability company, corporation, firm, trust, association, unincorporated organization, Governmental Authority, or any other entity not specifically listed in this Section 1.113 (Person).
1.114Phase I Clinical Studymeans a human clinical trial of a Compound or Product, the principal purpose of which is a preliminary determination of safety, tolerability, pharmacological activity or pharmacokinetics in healthy individuals or patients or similar clinical study prescribed by the applicable Regulatory Authority, including the trials referred to in 21 C.F.R. §312.21(a), as amended.
1.115Phase II Clinical Studymeans a human clinical trial of a Compound or Product, the principal purpose of which is a determination of safety and efficacy in the target patient population, which is prospectively designed to generate sufficient data that may permit commencement of a Phase III Clinical Study or a similar clinical study prescribed by the Regulatory Authorities, from time to time, pursuant to applicable Law or otherwise, including the trials referred to in 21 C.F.R. §312.21(b), as amended.
1.116Phase III Clinical Study” means a human clinical trial of a Compound or Product on a sufficient number of subjects in an indicated patient population that is designed to establish that a Compound or Product is safe and efficacious for its intended use and to determine the benefit/risk relationship, warnings, precautions, and adverse reactions that are associated with such product in the dosage range to be prescribed, which trial is intended to support marketing approval of such Compound or Product, including all tests and studies that are required by the FDA from time to time, pursuant to applicable Law or otherwise, including the trials referred to in 21 C.F.R. §312.21(c), as amended.
1.117PHSA means the Public Health Service Act (42 U.S.C. § 201 et seq.), as amended.
1.118Premarket Notice” has the meaning set forth in Section 8.4.4(b) (Pre-Marketing Litigation).
1.119Pre-Signing Lilly Target” means each of the Targets set forth on Schedule 2.1 (Pre-Signing Lilly Targets).
1.120Pricing Approval” means such approval, agreement, determination or decision establishing prices for a Product that can be charged to consumers or will be reimbursed by Governmental Authorities in a country in the Territory where Governmental Authorities of such country approve or determine pricing for pharmaceutical or biological products for reimbursement or otherwise.
1.121Product” means any pharmaceutical composition, preparation, formulation or product containing or comprising a Compound, alone or in combination with one or more other active ingredients, in any and all forms, presentations, delivery systems and dosages.

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1.122Product Infringement” has the meaning set forth in Section 8.3.2 (Enforcement of ImmunoGen Patents).
1.123Product-Specific Patent” means any Patent Right [***].
1.124Program IP” means Program Know-How and Program Patents.
1.125Program Know-How” means all Know-How conceived, discovered, developed or otherwise made in the course of activities conducted pursuant to this Agreement by or on behalf of a Party (or its Affiliates), whether solely or jointly, but excluding any Foreground Platform Know-How.
1.126Program Patent” means any Patent Right that claims any Program Know-How.
1.127Proposals” has the meaning set forth in Section 13.2.3(b).
1.128Proposed Biosimilar Product” has the meaning set forth in Section 8.4.1 (Notice).
1.129Proposed Patent List” has the meaning set forth in Section 8.4.3(a) (Preparation of Proposed Patent List).
1.130Proposed Targets” has the meaning set forth in Section 2.4.2(a) (Target Selection Notice).
1.131[***].
1.132Regulatory Approval” means, with respect to a country or other jurisdiction in the Territory, all approvals of the applicable Regulatory Authority necessary for the commercial marketing and sale of a product in such country or jurisdiction, including, where applicable, (a) pre- and post- approval marketing authorizations (including any prerequisite Manufacturing approval or authorization related thereto) and (b) approval of the expansion or modification of the label for additional indications or uses, but excluding any Pricing Approval.
1.133Regulatory Approval Application” means (a) a BLA or New Drug Application (NDA) or (b) any other corresponding foreign application in the Territory to seek Regulatory Approval of a product in any country or multinational jurisdiction, as defined in applicable Laws and filed with the relevant Regulatory Authorities of such country or jurisdiction.
1.134Regulatory Authoritymeans any applicable supranational, federal, national, regional, state, provincial, or local governmental or regulatory authority, agency, department, bureau, commission, council, or other entities (e.g., the FDA, EMA and Japan PMDA) regulating or otherwise exercising authority with respect to activities contemplated in this Agreement, including the Exploitation of the Compounds or Products in the Territory.
1.135Regulatory Filingmeans all (a) applications (including all INDs and Regulatory Approval Applications), registrations, licenses, authorizations, and approvals (including Regulatory Approvals), (b) correspondence and reports submitted to or received from Regulatory Authorities (including minutes and official contact reports relating to any communications with
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