adro-10q_20160930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended September 30, 2016

OR

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

For the transition period from              to             

Commission File Number 001-37345

 

ADURO BIOTECH, INC.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

 

94-3348934

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

740 Heinz Avenue

Berkeley, California  94710

(Address of principal executive offices including zip code)

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

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    YES      NO  

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a small reporting company)

  

Small reporting company

 

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

The number of shares of Registrant’s Common Stock outstanding as of October 31, 2016 was 67,182,220.

 

 

 

 


 

Table of Contents

 

 

 

 

Page

 

 

PART I—FINANCIAL INFORMATION

 

Item 1.

 

Condensed Consolidated Financial Statements (unaudited)

3

 

 

Condensed Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015

3

 

 

Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015

4

 

 

Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2016 and 2015

5

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015

6

 

 

Notes to the Condensed Consolidated Financial Statements

7

Item 2.

 

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

20

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

27

Item 4.

 

Controls and Procedures

28

 

 

 

 

 

 

PART II—OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

29

Item 1A.

 

Risk Factors

29

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

61

Item 3.

 

Defaults Upon Senior Securities

61

Item 4.

 

Mine Safety Disclosures

61

Item 5.

 

Other Information

61

Item 6.

 

Exhibits

61

SIGNATURES

62

EXHIBIT INDEX

63

 

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

 

 

2


 

PART I—FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

 

ADURO BIOTECH, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

97,983

 

 

$

150,456

 

Short-term marketable securities

 

 

271,985

 

 

 

265,198

 

Accounts receivable

 

 

1,056

 

 

 

4,846

 

Prepaid expenses and other current assets

 

 

7,199

 

 

 

4,004

 

Total current assets

 

 

378,223

 

 

 

424,504

 

Long-term marketable securities

 

 

17,179

 

 

 

15,391

 

Property and equipment, net

 

 

25,931

 

 

 

3,986

 

Goodwill

 

 

8,164

 

 

 

8,469

 

Intangible assets, net

 

 

29,805

 

 

 

29,400

 

Restricted cash

 

 

468

 

 

 

 

Other assets

 

 

7,216

 

 

 

75

 

Total assets

 

$

466,986

 

 

$

481,825

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,908

 

 

$

5,086

 

Accrued clinical trial and manufacturing expenses

 

 

7,283

 

 

 

5,522

 

Accrued expenses and other liabilities

 

 

9,678

 

 

 

5,412

 

Deferred revenue

 

 

15,164

 

 

 

15,046

 

Total current liabilities

 

 

34,033

 

 

 

31,066

 

Deferred rent

 

 

5,937

 

 

 

 

Contingent consideration

 

 

3,542

 

 

 

3,750

 

Deferred revenue

 

 

166,667

 

 

 

178,037

 

Deferred tax liabilities

 

 

6,868

 

 

 

7,350

 

Total liabilities

 

 

217,047

 

 

 

220,203

 

Commitments and contingencies

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 10,000,000 shares authorized at

   September 30, 2016 and December 31, 2015; and zero shares issued

   and outstanding at September 30, 2016 and December 31, 2015

 

 

 

 

 

 

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

   September 30, 2016 and December 31, 2015; and 67,114,020

   and 63,587,833 shares issued and outstanding at September 30, 2016

   and December 31, 2015

 

 

7

 

 

 

6

 

Additional paid-in capital

 

 

411,516

 

 

 

362,807

 

Accumulated other comprehensive income (loss)

 

 

850

 

 

 

(339

)

Accumulated deficit

 

 

(162,434

)

 

 

(100,852

)

Total stockholders’ equity

 

 

249,939

 

 

 

261,622

 

Total liabilities and stockholders’ equity

 

$

466,986

 

 

$

481,825

 

 

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

 

 

3


 

ADURO BIOTECH, INC.

Condensed Consolidated Statements of Operations

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration and license revenue

 

$

3,794

 

 

$

18,720

 

 

$

46,715

 

 

$

37,581

 

Grant revenue

 

 

 

 

 

426

 

 

 

88

 

 

 

1,022

 

Total revenue

 

 

3,794

 

 

 

19,146

 

 

 

46,803

 

 

 

38,603

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

19,046

 

 

 

11,813

 

 

 

66,855

 

 

 

35,992

 

General and administrative

 

 

8,556

 

 

 

6,908

 

 

 

26,255

 

 

 

19,000

 

Amortization of intangible assets

 

 

138

 

 

 

 

 

 

415

 

 

 

 

Total operating expenses

 

 

27,740

 

 

 

18,721

 

 

 

93,525

 

 

 

54,992

 

Income (loss) from operations

 

 

(23,946

)

 

 

425

 

 

 

(46,722

)

 

 

(16,389

)

Loss from remeasurement of fair value of warrants

 

 

 

 

 

 

 

 

 

 

 

(26,077

)

Interest income, net

 

 

566

 

 

 

139

 

 

 

1,540

 

 

 

156

 

Other (loss) income, net

 

 

(1

)

 

 

3

 

 

 

(32

)

 

 

1

 

Income (loss) before income tax

 

 

(23,381

)

 

 

567

 

 

 

(45,214

)

 

 

(42,309

)

Provision for income taxes

 

 

11,670

 

 

 

 

 

 

16,368

 

 

 

 

Net income (loss)

 

$

(35,051

)

 

$

567

 

 

$

(61,582

)

 

$

(42,309

)

Net income (loss) per common share, basic

 

$

(0.54

)

 

$

0.01

 

 

$

(0.96

)

 

$

(1.09

)

Net income (loss) per common share, diluted

 

$

(0.54

)

 

$

0.01

 

 

$

(0.96

)

 

$

(1.09

)

Shares used in computing net loss per common share, basic

 

 

65,134,102

 

 

 

62,274,438

 

 

 

64,472,947

 

 

 

38,674,889

 

Shares used in computing net loss per common share, diluted

 

 

65,134,102

 

 

 

71,726,118

 

 

 

64,472,947

 

 

 

38,674,889

 

 

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

 

 

4


 

ADURO BIOTECH, INC.

Condensed Consolidated Statements of Comprehensive Loss

(In thousands)

(Unaudited)

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Net income (loss)

 

$

(35,051

)

 

$

567

 

 

$

(61,582

)

 

$

(42,309

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on marketable securities

 

 

(61

)

 

 

75

 

 

 

159

 

 

 

75

 

Foreign currency translation adjustments

 

 

520

 

 

 

 

 

 

1,030

 

 

 

 

Comprehensive income (loss)

 

$

(34,592

)

 

$

642

 

 

$

(60,393

)

 

$

(42,234

)

 

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

 

 

5


 

ADURO BIOTECH, INC.

Condensed Consolidated Statement of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

Cash Flows from Operating Activities

 

 

 

 

 

 

 

 

Net loss

 

$

(61,582

)

 

$

(42,309

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,230

 

 

 

381

 

Amortization of intangible assets

 

 

415

 

 

 

 

Accretion of discounts and amortization of premiums on marketable securities

 

 

1,462

 

 

 

165

 

Stock-based compensation

 

 

10,852

 

 

 

5,232

 

Excess tax benefit from stock-based compensation

 

 

(4,921

)

 

 

 

Gain from remeasurement of fair value of contingent consideration

 

 

(313

)

 

 

 

Loss from remeasurement of fair value of warrants

 

 

 

 

 

26,077

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Accounts receivable

 

 

3,790

 

 

 

6

 

Prepaid expenses and other assets

 

 

(2,939

)

 

 

(2,455

)

Accounts payable

 

 

(3,346

)

 

 

2,209

 

Deferred revenue

 

 

(11,253

)

 

 

165,195

 

Accrued clinical trial and manufacturing expenses

 

 

1,761

 

 

 

1,536

 

Accrued expenses and other liabilities

 

 

4,294

 

 

 

1,717

 

Net cash (used in) provided by operating activities

 

 

(60,550

)

 

 

157,754

 

Cash Flows from Investing Activities

 

 

 

 

 

 

 

 

Purchase of marketable securities

 

 

(316,098

)

 

 

(267,513

)

Proceeds from maturities of marketable securities

 

 

306,264

 

 

 

 

Restricted cash

 

 

(468

)

 

 

 

Purchase of property and equipment

 

 

(19,479

)

 

 

(1,816

)

Net cash used in investing activities

 

 

(29,781

)

 

 

(269,329

)

Cash Flows from Financing Activities

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of offering costs

 

 

31,849

 

 

 

150,283

 

Proceeds from issuance of convertible preferred stock, net of issuance costs

 

 

 

 

 

22,522

 

Excess tax benefit from stock-based compensation

 

 

4,921

 

 

 

 

Proceeds from exercise of stock options and warrants

 

 

574

 

 

 

305

 

Proceeds from employee stock purchase plan

 

 

514

 

 

 

 

Net cash provided by financing activities

 

 

37,858

 

 

 

173,110

 

Net (decrease) increase in cash and cash equivalents

 

 

(52,473

)

 

 

61,535

 

Cash and cash equivalents at beginning of period

 

 

150,456

 

 

 

119,456

 

Cash and cash equivalents at end of period

 

$

97,983

 

 

$

180,991

 

Supplemental Disclosure of Cash Flow Information

 

 

 

 

 

 

 

 

Cash paid for taxes

 

$

18,900

 

 

$

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities

 

 

 

 

 

 

 

 

Conversion of convertible preferred stock to common stock

 

$

 

 

$

164,964

 

Reclassification of warrant liabilities to additional paid-in capital

 

$

 

 

$

27,066

 

Purchase of property and equipment in accounts payable and accrued liabilities

 

$

3,667

 

 

$

79

 

 

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

 

 

6


 

ADURO BIOTECH, INC.

Notes to Condensed Consolidated Financial Statements

 

 

1. Organization and Nature of Business

Aduro Biotech, Inc., or the Company, is an immunotherapy company focused on the discovery, development and commercialization of therapies that transform the treatment of challenging diseases. The Company’s technology platforms, which are designed to harness the body's natural immune system, are being investigated in cancer indications and have the potential to expand into autoimmune and infectious diseases. The Company operates in one business segment.

The Company has developed three technology platforms, Live, Attenuated, Double-Deleted, or LADD, STING Pathway Activator and B-select monoclonal antibodies. The Company’s LADD technology platform is based on proprietary attenuated strains of Listeria that have been engineered to express tumor-associated antigens to induce specific and targeted immune responses. This platform is being developed as a treatment for multiple indications, including mesothelioma, ovarian, pancreatic, lung and prostate cancers, and glioblastoma. The Company’s STING Pathway Activator platform is designed to activate the intracellular Stimulator of Interferon Genes, or STING, receptor, resulting in a potent tumor-specific immune response. The Company’s B-select monoclonal antibody platform includes a number of immune modulating assets in research and preclinical development and is led by the Company’s wholly owned subsidiary based in the Netherlands, Aduro Biotech Holdings, Europe B.V., or Aduro Biotech Europe. The Company is also collaborating with leading global pharmaceutical companies to expand its products and technology platforms.

Initial Public Offering and Concurrent Private Placement

On April 20, 2015, the Company closed its initial public offering, or IPO, and sold 8,050,000 shares of its common stock (inclusive of 1,050,000 shares of common stock pursuant to the full exercise of the underwriters’ option to purchase additional shares) at a price to the public of $17.00 per share. The Company received aggregate net proceeds of $124.2 million, net of underwriting discounts and offering expenses. The Company also sold to Novartis Institutes for BioMedical Research, Inc., or NIBR, in a concurrent private placement 1,470,588 shares of common stock at a price of $17.00 per share for proceeds of $25.0 million. Upon the closing of the IPO, all then-outstanding shares of convertible preferred stock converted by their terms into 51,822,659 shares of common stock. Additionally, the Company amended and restated its certificate of incorporation effective April 20, 2015 to, among other things, change the authorized number of shares of common stock to 300,000,000 shares and the authorized number of shares of preferred stock to 10,000,000 shares.

 

 

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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, and follow the requirements of the Securities and Exchange Commission, or the SEC, for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted, and accordingly the balance sheet as of December 31, 2015 has been derived from audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements. These financial statements have been prepared on the same basis as our annual financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of our financial information. The results of operations for the three and nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the year ending December 31, 2016 or for any other interim period or for any other future year.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2015 included in our Annual Report on Form 10-K filed with the SEC.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated. 

7


 

Use of Estimates

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

 

 

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board, or FASB, issued Auditing Standards Update, or ASU, No. 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU affects any entity that either enters into contracts with customers to transfer goods and services or enters into contracts for the transfer of nonfinancial assets. ASU 2014-09 will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which it expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under the currently effective guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In July 2015, the FASB voted to defer the effective date of the ASU by one year to December 15, 2017 for fiscal years, and interim periods within those years, beginning after that date. Entities are permitted to adopt ASU 2014-09 in accordance with the original effective date of December 15, 2016 if they choose. In April 2016, the FASB issued ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, which reduces the complexity when applying the guidance for identifying performance obligations and improves the operability and understandability of the license implementation guidance. In May 2016, the FASB issued ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which amends the guidance on transition, collectability, noncash consideration and the presentation of sales and other similar taxes. The Company is currently evaluating the impact of this standard on its condensed consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which establishes a comprehensive new lease accounting model. The new standard: (a) clarifies the definition of a lease; (b) requires a dual approach to lease classification similar to current lease classifications; and, (c) causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for leases with a lease-term of more than twelve months. The new standard is effective for fiscal years and interim periods beginning after December 15, 2018 and requires modified retrospective application. Early adoption is permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-02 will have on its condensed consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The standard is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification of awards as either equity or liabilities, classification on the statement of cash flows and forfeitures. The standard is effective for fiscal years and interim periods beginning after December 15, 2016. Early adoption is permitted. The Company is currently evaluating the impact that the standard will have on its condensed consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments—Credit Losses (Topic 326). The standard changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The Company will recognize an allowance for credit losses on available-for-sale securities rather than deductions in amortized cost. The standard is effective for fiscal years and interim periods beginning after December 15, 2019. Early adoption is permitted for all periods beginning after December 15, 2018. The Company is currently evaluating the impact that the standard will have on its condensed consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 identifies how certain cash receipts and cash payments are presented and classified in the Statement of Cash Flows. The standard is effective for fiscal years and interim periods beginning after December 15, 2017. The standard should be applied retrospectively and early adoption is permitted, including adoption in an interim period. The Company is currently in the process of evaluating the impact that the standard will have on its condensed consolidated financial statements.

 

 

8


 

3. Fair Value Measurements

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

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

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

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

The Company’s cash equivalents, which include money market funds, are classified as Level 1 because they are valued using quoted market prices. The Company’s marketable securities consist of available-for-sale securities and are generally classified as Level 2 because their value is based on valuations using significant inputs derived from or corroborated by observable market data.

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

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

 

 

 

September 30, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

57,500

 

 

$

 

 

$

 

 

$

57,500

 

U.S. government and agency securities

 

 

 

 

 

186,948

 

 

 

 

 

 

186,948

 

Corporate debt securities

 

 

 

 

 

68,191

 

 

 

 

 

 

68,191

 

Commercial paper

 

 

 

 

 

59,521

 

 

 

 

 

 

59,521

 

Total

 

$

57,500

 

 

$

314,660

 

 

$

 

 

$

372,160

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration related to acquisition

 

$

 

 

$

 

 

$

3,542

 

 

$

3,542

 

Total

 

$

 

 

$

 

 

$

3,542

 

 

$

3,542

 

 

 

 

December 31, 2015

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Financial Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

104,602

 

 

$

 

 

$

 

 

$

104,602

 

U.S. government and agency securities

 

 

 

 

 

194,055

 

 

 

 

 

 

194,055

 

Corporate debt securities

 

 

 

 

 

74,918

 

 

 

 

 

 

74,918

 

Commercial paper

 

 

 

 

 

42,295

 

 

 

 

 

 

42,295

 

Total

 

$

104,602

 

 

$

311,268

 

 

$

 

 

$

415,870

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration related to acquisition

 

$

 

 

$

 

 

$

3,750

 

 

$

3,750

 

Total

 

$

 

 

$

 

 

$

3,750

 

 

$

3,750

 

 

9


 

The acquisition-date fair value of the contingent consideration liability represents the future consideration that is contingent upon the achievement of specified development milestones for a product candidate. The fair value of the contingent consideration is based on the Company’s probability-weighted discounted cash flow assessment that considers probability and timing of future payments. The fair value measurement is based on significant Level 3 inputs such as anticipated timelines and probability of achieving development milestones. Changes in the fair value of the liability for contingent consideration, except for the impact of foreign currency, will be recognized in the condensed consolidated statements of operations until settlement.

The Company did not have any financial assets and liabilities measured at fair value on a non-recurring basis as of September 30, 2016 and December 31, 2015. There were no transfers between the fair value measurement category levels during any of the periods presented.

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

 

 

 

Contingent

Consideration

 

Balance at December 31, 2015

 

$

3,750

 

Net decrease in fair value upon remeasurement

 

 

(313

)

Foreign currency impact on contingent consideration

 

 

105

 

Balance at September 30, 2016

 

$

3,542

 

 

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

 

 

 

September 30, 2016

 

 

 

Amortized

cost

 

 

Unrealized

gains

 

 

Unrealized

losses

 

 

Estimated

Fair Value

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

14,987

 

 

$

 

 

$

 

 

$

14,987

 

Money market funds

 

 

57,500

 

 

 

 

 

 

 

 

 

57,500

 

U.S. government and agency securities

 

 

4,700

 

 

 

 

 

 

 

 

 

4,700

 

Commercial paper

 

 

20,796

 

 

 

 

 

 

 

 

 

20,796

 

Total cash and cash equivalents

 

$

97,983

 

 

$

 

 

$

 

 

$

97,983

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

$

182,206

 

 

$

65

 

 

$

(23

)

 

$

182,248

 

Corporate debt securities

 

 

68,209

 

 

 

6

 

 

 

(24

)

 

 

68,191

 

Commercial paper

 

 

38,725

 

 

 

 

 

 

 

 

 

38,725

 

Total marketable securities

 

$

289,140

 

 

$

71

 

 

$

(47

)

 

$

289,164

 

 

 

 

December 31, 2015

 

 

 

Amortized

cost

 

 

Unrealized

gains

 

 

Unrealized

losses

 

 

Estimated

Fair Value

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash

 

$

15,175

 

 

$

 

 

$

 

 

$

15,175

 

Money market funds

 

 

104,602

 

 

 

 

 

 

 

 

 

104,602

 

Commercial paper

 

 

7,899

 

 

 

 

 

 

 

 

 

7,899

 

U.S. government and agency securities

 

 

22,780

 

 

 

 

 

 

 

 

 

22,780

 

Total cash and cash equivalents

 

$

150,456

 

 

$

 

 

$

 

 

$

150,456

 

Marketable securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government and agency securities

 

$

171,416

 

 

$

3

 

 

$

(144

)

 

$

171,275

 

Corporate debt securities

 

 

74,958

 

 

 

38

 

 

 

(78

)

 

 

74,918

 

Commercial paper

 

 

34,396

 

 

 

 

 

 

 

 

 

34,396

 

Total marketable securities

 

$

280,770

 

 

$

41

 

 

$

(222

)

 

$

280,589

 

 

10


 

The amortized cost and estimated fair value of the Company’s available-for-sale marketable securities by contractual maturity are summarized below as of September 30, 2016 (in thousands):

 

 

 

Amortized cost

 

 

Estimated Fair Value

 

Mature in one year or less

 

$

271,960

 

 

$

271,985

 

Mature after one year through two years

 

 

17,180

 

 

 

17,179

 

Total available-for-sale marketable securities

 

$

289,140

 

 

$

289,164

 

 

 

4. Balance Sheet Components

Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Lab equipment

 

$

4,051

 

 

$

3,011

 

Computer and office equipment

 

 

1,501

 

 

 

959

 

Furniture and fixtures

 

 

1,211

 

 

 

306

 

Leasehold improvements

 

 

15,753

 

 

 

669

 

Construction in progress

 

 

6,302

 

 

 

698

 

Total property and equipment

 

 

28,818

 

 

 

5,643

 

Less: accumulated depreciation and amortization

 

 

(2,887

)

 

 

(1,657

)

Property and equipment, net

 

$

25,931

 

 

$

3,986

 

 

Depreciation and amortization expense was $490,000 and $162,000 for the three months ended September 30, 2016 and 2015, respectively, and $1.2 million and $381,000 for the nine months ended September 30, 2016 and 2015, respectively.

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consisted of the following (in thousands):

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Accrued construction in progress

 

$

3,470

 

 

$

 

Compensation and related benefits

 

 

3,416

 

 

 

2,765

 

Professional and consulting services

 

 

1,876

 

 

 

1,650

 

Other

 

 

916

 

 

 

997

 

Total accrued expenses and other liabilities

 

$

9,678

 

 

$

5,412

 

 

 

 

5. Goodwill and Intangible Assets

Goodwill

The gross carrying amount of goodwill was as follows (in thousands):

 

Balance at December 31, 2015

 

$

8,469

 

Foreign currency translation adjustment

 

 

185

 

Purchase price allocation adjustment

 

 

(490

)

Balance at September 30, 2016

 

$

8,164

 

 

In September 2016, the Company filed its 2015 Netherlands tax return and finalized the purchase price accounting related to its acquisition of Aduro Biotech Europe (formerly known as BioNovion Holding B.V.) resulting in a measurement period adjustment to goodwill of $490,000.

11


 

Intangible assets

The gross carrying amounts and net book value of our intangible assets were as follows (in thousands):

 

 

 

September 30, 2016

 

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Book Value

 

Intangible assets with finite lives:

 

 

 

 

 

 

 

 

 

 

 

 

License agreement

 

$

11,087

 

 

$

508

 

 

$

10,579

 

Total intangible assets with finite lives

 

 

11,087

 

 

 

508

 

 

 

10,579

 

Acquired IPR&D assets

 

 

19,226

 

 

 

 

 

 

19,226

 

Total intangible assets

 

$

30,313

 

 

$

508

 

 

$

29,805

 

 

 

 

December 31, 2015

 

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Book Value

 

Intangible assets with finite lives:

 

 

 

 

 

 

 

 

 

 

 

 

License agreement

 

$

10,786

 

 

$

89

 

 

$

10,697

 

Total intangible assets with finite lives

 

 

10,786

 

 

 

89

 

 

 

10,697

 

Acquired IPR&D assets

 

 

18,703

 

 

 

 

 

 

18,703

 

Total intangible assets

 

$

29,489

 

 

$

89

 

 

$

29,400

 

 

Intangible assets are carried at cost less accumulated amortization. The license agreement is being amortized over a period of 20 years and the amortization expense is recorded in operating expenses. The increase in the gross carrying amount of intangible assets as of September 30, 2016 compared to December 31, 2015 reflected a positive impact of foreign currency exchange which was primarily due to the strengthening of the Euro against the U.S. dollar.

Amortization expense was $138,000 and $415,000 for the three and nine months ended September 30, 2016, respectively. There was no amortization expense for the comparable periods in 2015. Based on finite-lived intangible assets recorded as of September 30, 2016, the estimated future amortization expense is as follows (in thousands):

 

Year Ending December 31,

 

Estimated

Amortization

Expense

 

2016 (remaining three months)

 

$

139

 

2017

 

 

554

 

2018

 

 

554

 

2019

 

 

554

 

2020

 

 

554

 

 

 

6. Collaboration Agreements

Novartis Agreement

In March 2015, the Company entered into a collaboration and license agreement with Novartis Pharmaceuticals Corporation, or Novartis, pursuant to which the Company is collaborating worldwide with Novartis regarding the development and potential commercialization of product candidates containing an agonist of the molecular target known as STING in the field of oncology, including immuno-oncology and cancer vaccines. Under this agreement, or the Novartis Agreement, the Company granted Novartis a co-exclusive license to develop such products worldwide, an exclusive license to commercialize such products outside the United States and a non-exclusive license to support the Company in commercializing such products in the United States if it requests such support. The collaboration is guided by a joint steering committee with each party having final decision making authority regarding specified areas of development or commercialization.

Under the Novartis Agreement, the Company received an upfront payment of $200.0 million in April 2015. During the second quarter of 2016, the Company earned a $35.0 million development milestone upon initiation of a Phase 1 trial for the first STING product candidate, ADU-S100, and recognized the payment as revenue in the period. The Company is also eligible to receive up to an additional $215.0 million in development milestones and up to an additional $250.0 million in regulatory approval milestones.

12


 

The Company is responsible for 38% of the joint development costs worldwide and Novartis is responsible for the remaining 62% of the joint development costs worldwide.

The Company will also receive 50% of gross profits on sales of any products commercialized pursuant to this collaboration in the United States and 45% of gross profits for specified European countries and Japan. For each of these profit share countries, each party will be responsible for its respective commercial sharing percentage of all joint commercialization costs incurred in that country.

For all other countries where the Company is not sharing profits, Novartis will be responsible for all commercialization costs and will pay the Company a royalty in the mid-teens on all net sales of product sold by Novartis, its affiliates and sublicensees, with such percentage subject to reduction post patent and data exclusivity expiration and subject to reduction, capped at a specified percentage, for royalties payable to third party licensors. Novartis’ royalty obligation will run on a country-by-country basis until the later of expiration of the last valid claim covering the product, expiration of data exclusivity for the product or 12 years after first commercial sale of the product in such country.

With respect to the United States, specified European countries and/or Japan, the Company may elect for such region to either reduce by 50% or to eliminate in full the Company’s development and commercialization cost sharing obligation. If the Company elects to reduce its cost sharing percentage by 50% in any such region, then its profit share in such region will also be reduced by 50%. If the Company elects to eliminate its development co