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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, 2020

OR

 

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

 

For the transition period from                      to                     

Commission file number 001-36150  

SORRENTO THERAPEUTICS, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

Delaware

 

33-0344842

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification Number)

 

4955 Directors Place

San Diego, California 92121

(Address of Principal Executive Offices)

 

(858) 203-4100

 

(Registrant’s Telephone Number, Including Area Code)

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

 

Title of each class:

 

Trading Symbol (s)

 

Name of each exchange on which registered:

Common Stock, $0.0001 par value

 

SRNE

 

The Nasdaq Stock Market LLC

 

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 file, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

The number of shares of the issuer’s common stock, par value $0.0001 per share, outstanding as of April 24, 2020 was 209,690,497.

 


 

Sorrento Therapeutics, Inc.

Form 10-Q for the Quarter Ended March 31, 2020

Table of Contents

 

Part I

Financial Information

3

Item 1.

Consolidated Financial Statements (Unaudited)

3

 

Consolidated Balance Sheets (Unaudited) as of March 31, 2020 and December 31, 2019

3

 

Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2020 and 2019

4

 

Consolidated Statements of Comprehensive Loss (Unaudited) for the Three Months Ended March 31, 2020 and 2019

5

 

Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2020 and 2019

6

 

Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2020 and 2019

7

 

Notes to Consolidated Financial Statements (Unaudited)

8

Item 2.

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

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

34

Item 4.

Controls and Procedures

34

 

 

Part II

Other Information

35

Item 1.

Legal Proceedings

35

Item 1A.

Risk Factors

36

Item 5.

Other Information

42

Item 6.

Exhibits

42

SIGNATURES

44

 

 

 

 


 

PART I. FINANCIAL INFORMATION

Item 1.Consolidated Financial Statements.

SORRENTO THERAPEUTICS, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except for share amounts; unaudited)

 

ASSETS

 

March 31,

2020

 

 

December 31,

2019

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,897

 

 

$

22,521

 

Restricted cash

 

 

 

 

 

13,098

 

Accounts receivables, net

 

 

10,023

 

 

 

14,454

 

Inventory

 

 

3,038

 

 

 

3,362

 

Prepaid expenses and other

 

 

14,674

 

 

 

14,153

 

Total current assets

 

 

49,632

 

 

 

67,588

 

Property and equipment, net

 

 

28,470

 

 

 

29,888

 

Operating lease right-of-use assets

 

 

46,329

 

 

 

46,384

 

Intangibles, net

 

 

62,316

 

 

 

63,308

 

Goodwill

 

 

38,298

 

 

 

38,298

 

Cost method investments

 

 

237,008

 

 

 

237,008

 

Equity method investments

 

 

24,676

 

 

 

25,233

 

Restricted cash

 

 

45,050

 

 

 

45,150

 

Other, net

 

 

4,774

 

 

 

4,775

 

Total assets

 

$

536,553

 

 

$

557,632

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

28,986

 

 

$

27,630

 

Accrued payroll and related benefits

 

 

15,507

 

 

 

15,914

 

Accrued expenses

 

 

14,241

 

 

 

18,728

 

Current portion of deferred revenue

 

 

3,777

 

 

 

3,643

 

Acquisition consideration payable

 

 

398

 

 

 

908

 

Current portion of derivative liabilities

 

 

7,280

 

 

 

8,800

 

Current portion of debt

 

 

16,585

 

 

 

36,261

 

Current portion of operating lease liabilities

 

 

3,374

 

 

 

3,322

 

Total current liabilities

 

 

90,148

 

 

 

115,206

 

Long-term debt, net of discount

 

 

182,958

 

 

 

199,088

 

Deferred tax liabilities, net

 

 

8,893

 

 

 

9,043

 

Deferred revenue

 

 

114,085

 

 

 

114,389

 

Derivative liabilities

 

 

36,600

 

 

 

35,000

 

Operating lease liabilities

 

 

52,094

 

 

 

52,111

 

Other long-term liabilities

 

 

549

 

 

 

39

 

Total liabilities

 

$

485,327

 

 

$

524,876

 

Commitments and contingencies (See Note 10)

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

Sorrento Therapeutics, Inc. equity

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 100,000,000 shares authorized and no shares issued

   or outstanding

 

 

 

 

 

 

Common stock, $0.0001 par value 750,000,000 shares authorized and 204,566,004 and 167,798,120

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

 

 

23

 

 

 

18

 

Additional paid-in capital

 

 

875,712

 

 

 

788,122

 

Accumulated other comprehensive loss

 

 

(215

)

 

 

(270

)

Accumulated deficit

 

 

(725,013

)

 

 

(659,818

)

Treasury stock, 7,568,182 shares at cost at March 31, 2020, and December 31, 2019

 

 

(49,464

)

 

 

(49,464

)

Total Sorrento Therapeutics, Inc. stockholders’ equity

 

 

101,043

 

 

 

78,588

 

Noncontrolling interests

 

 

(49,817

)

 

 

(45,832

)

Total equity

 

 

51,226

 

 

 

32,756

 

Total liabilities and stockholders’ equity

 

$

536,553

 

 

$

557,632

 

 

See accompanying notes to unaudited consolidated financial statements

3


 

SORRENTO THERAPEUTICS, INC.  

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except for per share amounts; unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Revenues:

 

 

 

 

 

 

 

 

Net product revenues

 

$

5,248

 

 

$

3,359

 

Service revenues

 

 

2,473

 

 

 

2,784

 

Total revenues

 

 

7,721

 

 

 

6,143

 

Operating costs and expenses:

 

 

 

 

 

 

 

 

Cost of products sold

 

 

548

 

 

 

441

 

Cost of services

 

 

1,891

 

 

 

1,867

 

Research and development

 

 

21,154

 

 

 

25,616

 

Acquired in-process research and development

 

 

 

 

 

75,301

 

Selling, general and administrative

 

 

26,299

 

 

 

25,122

 

Intangible amortization

 

 

992

 

 

 

966

 

Total operating costs and expenses

 

 

50,884

 

 

 

129,313

 

Loss from operations

 

 

(43,163

)

 

 

(123,170

)

(Loss) gain on trading securities

 

 

(59

)

 

 

94

 

Loss on partial debt settlement

 

 

(23,645

)

 

 

 

Gain (loss) on derivative liabilities

 

 

4,920

 

 

 

(14,501

)

(Loss) gain on foreign currency exchange

 

 

(147

)

 

 

313

 

Interest expense

 

 

(6,825

)

 

 

(9,080

)

Interest income

 

 

19

 

 

 

534

 

Loss before income tax

 

 

(68,900

)

 

 

(145,810

)

Income tax benefit

 

 

(276

)

 

 

(178

)

Loss on equity method investments

 

 

(556

)

 

 

(897

)

Net loss

 

 

(69,180

)

 

 

(146,529

)

Net loss attributable to noncontrolling interests

 

 

(3,985

)

 

 

(38,458

)

Net loss attributable to Sorrento

 

$

(65,195

)

 

$

(108,071

)

Net loss per share - basic per share attributable to Sorrento

 

$

(0.36

)

 

$

(0.88

)

Net loss per share - diluted per share attributable to Sorrento

 

$

(0.36

)

 

$

(0.88

)

Weighted-average shares used during period - basic per share

   attributable to Sorrento

 

 

182,609

 

 

 

122,281

 

Weighted-average shares used during period - diluted per share

   attributable to Sorrento

 

 

182,609

 

 

 

122,281

 

 

See accompanying notes to unaudited consolidated financial statements

4


 

SORRENTO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands; unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2020

 

 

2019

 

Net loss

 

$

(69,180

)

 

$

(146,529

)

Other comprehensive loss:

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

55

 

 

 

85

 

Total other comprehensive loss

 

 

55

 

 

 

85

 

Comprehensive loss

 

 

(69,125

)

 

 

(146,444

)

Comprehensive loss attributable to noncontrolling interests

 

 

(3,985

)

 

 

(38,458

)

Comprehensive loss attributable to Sorrento

 

$

(65,140

)

 

$

(107,986

)

 

See accompanying notes to unaudited consolidated financial statements

5


 

SORRENTO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except for share amounts; unaudited)

 

 

 

Three Months Ended March 31, 2020

 

 

 

Common Stock

 

 

Treasury Stock

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Additional

Paid-in

Capital

 

 

Other

Comprehensive

Income (Loss)

 

 

Accumulated

Deficit

 

 

Noncontrolling

Interest

 

 

Total

 

Balance, December 31, 2019

 

 

167,798,120

 

 

$

18

 

 

 

7,568,182

 

 

$

(49,464

)

 

$

788,122

 

 

$

(270

)

 

$

(659,818

)

 

$

(45,832

)

 

$

32,756

 

Exercise of stock options, net

 

 

49,193

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

99

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

99

 

Issuance of common stock upon exercise of

   warrants

 

 

5,008,609

 

 

 

1

 

 

 

 

 

 

 

 

 

13,534

 

 

 

 

 

 

 

 

 

 

 

 

13,535

 

Issuance of common stock for public

   placement, net

 

 

2,090,802

 

 

 

1

 

 

 

 

 

 

 

 

 

7,325

 

 

 

 

 

 

 

 

 

 

 

 

7,326

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,682

 

 

 

 

 

 

 

 

 

 

 

 

3,682

 

Issuance of common stock from

   Aspire Purchase Agreement

 

 

29,619,280

 

 

 

3

 

 

 

 

 

 

 

 

 

62,950

 

 

 

 

 

 

 

 

 

 

 

 

62,953

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

55

 

 

 

 

 

 

 

 

 

 

55

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(65,195

)

 

 

(3,985

)

 

 

(69,180

)

Balance, March 31, 2020

 

 

204,566,004

 

 

$

23

 

 

 

7,568,182

 

 

$

(49,464

)

 

$

875,712

 

 

$

(215

)

 

$

(725,013

)

 

$

(49,817

)

 

$

51,226

 

 

 

 

Three Months Ended March 31, 2019

 

 

 

Common Stock

 

 

Treasury Stock

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Additional

Paid-in

Capital

 

 

Other

Comprehensive

Income (Loss)

 

 

Accumulated

Deficit

 

 

Noncontrolling

Interest

 

 

Total

 

Balance, December 31, 2018

 

 

122,280,092

 

 

$

13

 

 

 

7,568,182

 

 

$

(49,464

)

 

$

626,658

 

 

$

15

 

 

$

(367,750

)

 

$

(1,972

)

 

$

207,500

 

Issuance of common stock upon exercise of stock

   options

 

 

31,825

 

 

 

 

 

 

 

 

 

 

 

 

81

 

 

 

 

 

 

 

 

 

 

 

 

81

 

Equity contribution related to Semnur acquisition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,400

 

 

 

 

 

 

 

 

 

26,600

 

 

 

55,000

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,976

 

 

 

 

 

 

 

 

 

 

 

 

1,976

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

85

 

 

 

 

 

 

 

 

 

85

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(108,071

)

 

 

(38,458

)

 

 

(146,529

)

Balance, March 31, 2019

 

 

122,311,917

 

 

$

13

 

 

 

7,568,182

 

 

$

(49,464

)

 

$

657,115

 

 

$

100

 

 

$

(475,821

)

 

$

(13,830

)

 

$

118,113

 

 

 

See accompanying notes to unaudited consolidated financial statements

6


 

SORRENTO THERAPEUTICS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands; unaudited)

 

 

 

Three Months Ended March 31,

 

Operating activities

 

2020

 

 

2019

 

Net loss

 

$

(69,180

)

 

$

(146,529

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

3,058

 

 

 

3,471

 

Non-cash operating lease cost

 

 

842

 

 

 

1,292

 

Non-cash interest expense and amortization of debt issuance costs

 

 

4,386

 

 

 

6,200

 

Acquired in-process research and development

 

 

 

 

 

75,301

 

Stock-based compensation

 

 

3,682

 

 

 

1,976

 

Loss on partial debt settlement

 

 

23,645

 

 

 

 

(Gain) Loss on derivative liabilities

 

 

(4,920

)

 

 

14,501

 

Loss on equity method investments

 

 

556

 

 

 

897

 

Deferred tax provision

 

 

(150

)

 

 

(186

)

Changes in operating assets and liabilities, excluding effect of acquisitions:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

4,432

 

 

 

(3,575

)

Accrued payroll

 

 

(407

)

 

 

(76

)

Prepaid expenses, deposits and other assets

 

 

185

 

 

 

(2,677

)

Accounts payable

 

 

728

 

 

 

(3,439

)

Accrued expenses and other liabilities

 

 

(4,488

)

 

 

8,691

 

Deferred revenue

 

 

(169

)

 

 

(319

)

Other

 

 

(750

)

 

 

163

 

Net cash used for operating activities

 

 

(38,550

)

 

 

(44,309

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(21

)

 

 

(5,228

)

Purchase of assets related to Semnur, net of cash acquired

 

 

 

 

 

(17,040

)

Net cash used for investing activities

 

 

(21

)

 

 

(22,268

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from equity offerings, net of issuance costs

 

 

69,896

 

 

 

 

Proceeds from short-term debt

 

 

725

 

 

 

 

Proceeds from exercise of stock options and warrants

 

 

13,634

 

 

 

81

 

Repayments of debt and other obligations

 

 

(59,533

)

 

 

(1,178

)

Net cash provided by (used for) financing activities

 

 

24,722

 

 

 

(1,097

)

Net change in cash, cash equivalents and restricted cash

 

 

(13,849

)

 

 

(67,674

)

Net effect of exchange rate changes on cash

 

 

27

 

 

 

57

 

Cash, cash equivalents and restricted cash at beginning of period

 

 

80,769

 

 

 

213,330

 

Cash, cash equivalents and restricted cash at end of period

 

$

66,947

 

 

$

145,713

 

Supplemental disclosures:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

 

1,569

 

 

 

2,505

 

Supplemental disclosures of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Semnur acquisition consideration paid in equity

 

 

 

 

 

55,000

 

Semnur acquisition costs incurred but not paid

 

 

 

 

 

 

601

 

Property and equipment costs incurred but not paid

 

 

628

 

 

 

1,531

 

Reconciliation of cash, cash equivalents and restricted cash within the Company’s

   consolidated balance sheets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

 

21,897

 

 

 

90,971

 

Restricted cash

 

 

45,050

 

 

 

54,742

 

Cash, cash equivalents, and restricted cash

 

$

66,947

 

 

$

145,713

 

 

See accompanying notes to unaudited consolidated financial statements

7


 

SORRENTO THERAPEUTICS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2020

1. Description of Business and Basis of Presentation

Description of Business

Sorrento Therapeutics, Inc., together with its subsidiaries (the “Company”), is a clinical stage and commercial biopharma company focused on delivering innovative and clinically meaningful therapies to patients and their families to address unmet medical needs. The Company has programs assessing the use of its technologies and products in autoimmune, inflammatory, viral and neurodegenerative diseases.

At its core, the Company is an antibody-centric company and leverages its proprietary G-MAB™ library and targeted delivery modalities to generate the next generation of cancer therapeutics. These modalities include proprietary chimeric antigen receptor T-cell therapy (“CAR-T”), dimeric antigen receptor T-cell therapy (“DAR-T”), antibody drug conjugates (“ADCs”) as well as bispecific antibody approaches.

Outside of immuno-oncology programs, as part of the Company`s global aim to provide a wide range of therapeutic and diagnostic products to meet underserved markets, the Company has made investments in non-opioid pain management and is currently conducting preclinical development of multiple therapeutic, vaccine and diagnostic product candidates utilizing its proprietary platforms for the potential treatment, prevention and detection of COVID-19 and SARS-CoV-2.

Basis of Presentation and Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company’s subsidiaries. For consolidated entities where the Company owns or is exposed to less than 100% of the economics, the Company records net income (loss) attributable to noncontrolling interests in its consolidated statements of operations equal to the percentage of the economic or ownership interest retained in such entities by the respective noncontrolling parties. All intercompany balances and transactions have been eliminated in consolidation.

These consolidated financial statements should be read in conjunction with the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2019. Operating results for interim periods are not expected to be indicative of operating results for the Company’s 2020 fiscal year, or any subsequent period. The unaudited interim financial statements included herein reflect all normal and recurring adjustments that are necessary for a fair presentation of the results for the interim periods presented.  

Use of Estimates

To prepare consolidated financial statements in conformity with accounting principles generally accepted in the U.S. (“U.S. GAAP”), management must make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Significant Accounting Policies

During the three months ended March 31, 2020, there have been no changes to the Company`s significant accounting policies as described in its Annual Report on Form 10-K for the fiscal year ended December 31, 2019 outside of new accounting pronouncements as described below.

8


 

Revenue Recognition

The following table shows revenue disaggregated by product and service type for the three months ended March 31, 2020 and 2019 (in thousands):

 

 

 

Three Months Ended March 31,

 

 

 

2020

 

 

2019

 

Scilex Pharmaceuticals Inc. product sales

 

$

5,211

 

 

$

2,859

 

Other product sales

 

 

37

 

 

 

500

 

Net product revenue

 

$

5,248

 

 

$

3,359

 

 

 

 

 

 

 

 

 

 

Concortis Biosystems Corporation

 

$

1,321

 

 

$

1,810

 

Bioserv Corporation

 

 

1,032

 

 

 

854

 

Other revenue

 

 

120

 

 

 

120

 

Service revenue

 

$

2,473

 

 

$

2,784

 

 

Recent Accounting Pronouncements

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, to improve financial reporting by requiring timely recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. The ASU is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The adoption of the standard had no material impact on the Company’s consolidated financial statements.

 

In August 2018, the FASB issued ASU No. 2018-13, Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement, to improve the effectiveness of the disclosure requirements for fair value measurements. The ASU is effective for fiscal years and interim periods beginning after December 15, 2019. Amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements and the narrative description of measurement uncertainty will be applied prospectively as of the beginning of the fiscal year of adoption with all other amendments being applied retrospectively to all periods presented upon their effective date. The adoption of the standard had no material impact on the Company’s consolidated financial statements.

 

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes Topic 740): Simplifying the Accounting for Income Taxes. The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Accounting Standards Codification (“ASC”) Topic 740. The amendments also improve consistent application of and simplify U.S. GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance. The amendments in this update are effective for interim and annual periods for the Company beginning after December 15, 2020, with early adoption permitted. The Company is evaluating the impact this standard will have on its consolidated financial statements.

 

In January 2017, the FASB issued ASU No. 2017-04, Simplifying the Test for Goodwill Impairment (Topic 350). This standard eliminates Step 2 from the goodwill impairment test, instead requiring an entity to recognize a goodwill impairment charge for the amount by which the goodwill carrying amount exceeds the reporting unit’s fair value. This update also eliminated the qualitative assessment requirements for a reporting unit with zero or negative carrying value. This guidance is effective for interim and annual goodwill impairment tests in fiscal years beginning after December 15, 2019, with early adoption permitted, and must be applied on a prospective basis. The adoption of the standard had no material impact on the Company’s consolidated financial statements.

2. Liquidity and Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has negative working capital and recurring losses from operations, recurring negative cash flows from operations and substantial cumulative net losses to date and anticipates that it will continue to do so for the foreseeable future as it continues to identify and invest in advancing product candidates, as well as expanding corporate infrastructure.

9


 

The Company has plans in place to obtain sufficient additional fundraising to fulfill its operating, debt servicing and capital requirements for the next 12 months. The Company’s plans include continuing to fund its operating losses and capital funding needs through public or private equity or debt financings, strategic collaborations, licensing arrangements, asset sales, government grants or other arrangements. Although management believes such plans, if executed, should provide the Company sufficient financing to meet its needs, successful completion of such plans is dependent on factors outside of the Company’s control. As such, management cannot conclude that such plans will be effectively implemented within one year after the date that the financial statements are issued. As a result, management has concluded that the aforementioned conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued.

If the Company is unable to raise additional capital in sufficient amounts or on terms acceptable, the Company may have to significantly delay, scale back or discontinue the development or commercialization of one or more of its product candidates. The Company may also seek collaborators for one or more of its current or future product candidates at an earlier stage than otherwise would be desirable or on terms that are less favorable than might otherwise be available. Furthermore, the spread of COVID-19, which has caused a broad impact globally, may materially affect the Company economically. While the potential economic impact brought by, and the duration of, COVID-19 may be difficult to assess or predict, a widespread pandemic could result in significant disruption of global financial markets, reducing the Company’s ability to access capital, which could in the future negatively affect its liquidity. The consolidated financial statements do not reflect any adjustments that might be necessary if the Company is unable to continue as a going concern.

If the Company raises additional funds by issuing equity securities, substantial dilution to existing stockholders would result. If the Company raises additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations as well as covenants and specific financial ratios that may restrict the Company’s ability to operate its business.

Universal Shelf Registration

In March 2020, the Company filed a universal shelf registration statement on Form S-3 (the “Shelf Registration Statement”) with the Securities and Exchange Commission (the “SEC”), which was declared effective by the SEC on March 20, 2020. The Shelf Registration Statement provides the Company with the ability to offer up to $1.0 billion of securities, including equity and other securities as described in the Shelf Registration Statement. Pursuant to the Shelf Registration Statement, the Company may offer such securities from time to time and through one or more methods of distribution, subject to market conditions and the Company’s capital needs. Specific terms and prices will be determined at the time of each offering under a separate prospectus supplement, which will be filed with the SEC at the time of any offering. However, the Company cannot be sure that such additional funds will be available on reasonable terms, or at all.

3. Fair Value Measurements

The following table presents the Company’s financial assets and liabilities that are measured at fair value on a recurring basis (in thousands):

 

 

 

Fair Value Measurements at March 31, 2020

 

 

 

Balance

 

 

Quoted Prices

in Active

Markets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,897

 

 

$

21,897

 

 

$

 

 

$

 

Restricted cash

 

 

45,050

 

 

 

45,050

 

 

 

 

 

 

 

Total assets

 

$

66,947

 

 

$

66,947

 

 

$

 

 

$

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative liabilities

 

$

7,280

 

 

$

 

 

$

 

 

$

7,280

 

Derivative liabilities - non-current

 

 

36,600

 

 

 

 

 

 

 

 

 

36,600

 

Acquisition consideration payable

 

 

398

 

 

 

 

 

 

 

 

 

398

 

Acquisition consideration payable - non-current

 

 

549

 

 

 

 

 

 

 

 

 

549

 

Total liabilities

 

$

44,827

 

 

$

 

 

$

 

 

$

44,827

 

10


 

 

 

 

Fair Value Measurements at December 31, 2019

 

 

 

Balance

 

 

Quoted Prices

in Active

Markets

(Level 1)

 

 

Significant

Other

Observable

Inputs

(Level 2)

 

 

Significant

Unobservable

Inputs

(Level 3)

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

22,521

 

 

$

22,521

 

 

$

 

 

$

 

Restricted cash

 

 

58,248

 

 

 

58,248

 

 

 

 

 

 

 

Total assets

 

$

80,769