myok-10q_20190331.htm

 

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

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

For the quarterly period ended March 31, 2019

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: 001-37609

MYOKARDIA, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

44-5500552

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

333 Allerton Ave.

South San Francisco, CA

(Address of principal executive offices)

94080

(Zip Code)

(650) 741-0900

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  No 

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

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

  

Smaller reporting company

 

Emerging growth company    

 

 

 

 

 

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

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

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

MYOK

NASDAQ Global Select Market

 

The number of outstanding shares of the registrant’s common stock on May 6, 2019 was 46,070,504 shares.

 

 

 

 


 

MYOKARDIA, INC.

TABLE OF CONTENTS

 

 

Page

PART I—FINANCIAL INFORMATION

 

3

Item 1. Unaudited Condensed Consolidated Financial Statements

 

3

Condensed Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018

 

3

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months ended March 31, 2019 and 2018

 

4

Condensed Consolidated Statements of Stockholders’ Equity for the Three Months ended March 31, 2019 and 2018

 

5

Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2019 and 2018

 

6

Notes to 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

 

26

Item 4. Controls and Procedures

 

26

PART II—OTHER INFORMATION

 

27

Item 1. Legal Proceedings

 

27

Item 1A. Risk Factors

 

27

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

55

Item 3. Defaults Upon Senior Securities

 

55

Item 4. Mine Safety Disclosures

 

55

Item 5. Other Information

 

55

Item 6. Exhibits

 

56

EXHIBIT INDEX

 

56

SIGNATURES

 

57

 

 

 

 

 

 

 

 

 

 

 

 

2


 

PART I—FINANCIAL INFORMATION

 

 

Item 1.

Unaudited Condensed Consolidated Financial Statements

MYOKARDIA, INC.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

466,254

 

 

$

246,122

 

Short-term investments

 

 

92,540

 

 

 

68,564

 

Prepaid expenses and other current assets

 

 

4,312

 

 

 

4,760

 

Total current assets

 

 

563,106

 

 

 

319,446

 

Property and equipment, net

 

 

5,592

 

 

 

5,138

 

Operating lease right-of-use assets

 

 

2,473

 

 

 

 

Long-term investments

 

 

69,524

 

 

 

80,148

 

Restricted cash and other

 

 

2,611

 

 

 

2,521

 

Total assets

 

$

643,306

 

 

$

407,253

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

 

5,194

 

 

$

2,946

 

Accrued liabilities

 

 

20,469

 

 

 

20,758

 

Prepayment from collaboration partner

 

 

3,099

 

 

 

12,973

 

Operating lease liabilities - current

 

 

2,529

 

 

 

 

Total current liabilities

 

 

31,291

 

 

 

36,677

 

Other long-term liabilities

 

 

73

 

 

 

9

 

Total liabilities

 

 

31,364

 

 

 

36,686

 

Commitments and contingencies (Note 7)

 

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

 

Preferred stock, $0.0001 par value; 5,000,000 shares authorized; none

   issued and outstanding

 

 

 

 

 

 

Common stock, $0.0001 par value, 150,000,000 shares authorized

   at March 31, 2019 and December 31, 2018; 46,001,775 and

   40,288,949 shares issued and outstanding at March 31, 2019

   and December 31, 2018, respectively

 

 

5

 

 

 

4

 

Additional paid-in capital

 

 

851,664

 

 

 

573,183

 

Accumulated other comprehensive income (loss)

 

 

296

 

 

 

(67

)

Accumulated deficit

 

 

(240,023

)

 

 

(202,553

)

Total stockholders’ equity

 

 

611,942

 

 

 

370,567

 

Total liabilities and stockholders’ equity

 

$

643,306

 

 

$

407,253

 

 

 

 

 

 

 

 

 

 

 

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

 

 

3


 

MYOKARDIA, INC.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except share and per share amounts)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

Collaboration and license revenue

 

$

 

 

$

5,331

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

 

26,190

 

 

 

16,618

 

General and administrative

 

 

13,551

 

 

 

7,313

 

Total operating expenses

 

 

39,741

 

 

 

23,931

 

Loss from operations

 

 

(39,741

)

 

 

(18,600

)

Interest and other income, net

 

 

2,271

 

 

 

780

 

Net loss

 

 

(37,470

)

 

 

(17,820

)

Other comprehensive gain (loss)

 

 

363

 

 

 

(137

)

Comprehensive loss

 

$

(37,107

)

 

$

(17,957

)

Net loss per share, basic and diluted

 

$

(0.93

)

 

$

(0.50

)

Weighted average number of shares used to compute net loss

   per share, basic and diluted

 

 

40,506,313

 

 

 

35,827,235

 

 

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

 

4


 

MYOKARDIA, INC.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share and per share amounts)

(Unaudited)

 

For the three months ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

other

 

 

 

 

 

 

Total

 

 

 

 

Common Stock

 

 

Paid-In

 

 

comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

income/ (loss)

 

 

Deficit

 

 

Equity

 

BALANCE—December 31, 2018

 

 

 

40,288,949

 

 

$

4

 

 

$

573,183

 

 

$

(67

)

 

$

(202,553

)

 

$

370,567

 

Issuance of common stock in connection with the

   2019 follow-on offering, net of issuance costs of $17,638

 

 

 

5,663,750

 

 

 

1

 

 

 

271,212

 

 

 

 

 

 

 

 

 

271,213

 

Issuance of common stock upon the exercise of options

   and release of stock awards

 

 

 

49,076

 

 

 

 

 

 

280

 

 

 

 

 

 

 

 

 

280

 

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

 

8

 

 

 

 

 

 

 

 

 

8

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

6,981

 

 

 

 

 

 

 

 

 

6,981

 

Unrealized gains, net of tax benefits

 

 

 

 

 

 

 

 

 

 

 

 

363

 

 

 

 

 

 

363

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(37,470

)

 

 

(37,470

)

BALANCE—March 31, 2019

 

 

 

46,001,775

 

 

$

5

 

 

$

851,664

 

 

$

296

 

 

$

(240,023

)

 

$

611,942

 

 

For the three months ended March 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

Accumulated

other

 

 

 

 

 

 

Total

 

 

 

 

Common Stock

 

 

Paid-In

 

 

comprehensive

 

 

Accumulated

 

 

Stockholders’

 

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

income/ (loss)

 

 

Deficit

 

 

Equity

 

BALANCE—December 31, 2017

 

 

 

35,812,791

 

 

$

4

 

 

$

365,719

 

 

$

(192

)

 

$

(134,855

)

 

$

230,676

 

Issuance of common stock upon the exercise

   of options

 

 

 

110,961

 

 

 

 

 

 

806

 

 

 

 

 

 

 

 

 

806

 

Repurchase of early exercised stock options

 

 

 

(770

)

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

(1

)

Vesting of early exercised stock options

 

 

 

 

 

 

 

 

 

18

 

 

 

 

 

 

 

 

 

18

 

Stock-based compensation

 

 

 

 

 

 

 

 

 

3,631

 

 

 

 

 

 

 

 

 

3,631

 

Unrealized losses, net of tax benefits

 

 

 

 

 

 

 

 

 

 

 

 

(137

)

 

 

 

 

 

(137

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(17,820

)

 

 

(17,820

)

BALANCE—March 31, 2018

 

 

 

35,922,982

 

 

$

4

 

 

$

370,173

 

 

$

(329

)

 

$

(152,675

)

 

$

217,173

 

 

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

5


 

MYOKARDIA, INC.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

 

 

 

Three Months Ended

March 31,

 

 

 

2019

 

 

2018

 

Cash flow from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(37,470

)

 

$

(17,820

)

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

6,981

 

 

 

3,631

 

Depreciation

 

 

461

 

 

 

300

 

Amortization of (discounts) premiums on investments

 

 

(292

)

 

 

2

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivable from collaboration partner

 

 

 

 

 

1,013

 

Prepaid expenses and other current assets

 

 

448

 

 

 

(444

)

Operating lease right-of-use assets

 

 

635

 

 

 

 

Other long-term assets

 

 

(13

)

 

 

(146

)

Accounts payable

 

 

1,950

 

 

 

212

 

Accrued liabilities

 

 

(180

)

 

 

(1,257

)

Prepayment from collaboration partner

 

 

(9,874

)

 

 

3,269

 

Other long-term liabilities

 

 

(692

)

 

 

(43

)

Deferred revenue

 

 

 

 

 

(5,331

)

Net cash used in operating activities

 

 

(38,046

)

 

 

(16,614

)

Cash flow from investing activities:

 

 

 

 

 

 

 

 

Purchases of investments

 

 

(32,697

)

 

 

(31,749

)

Sales of investments

 

 

4,000

 

 

 

 

Maturities of investments

 

 

16,000

 

 

 

8,000

 

Purchases of property and equipment

 

 

(813

)

 

 

(1,188

)

Proceeds from sale of equipment

 

 

 

 

 

39

 

Net cash used in investing activities

 

 

(13,510

)

 

 

(24,898

)

Cash flow from financing activities:

 

 

 

 

 

 

 

 

Proceeds from issuance of common stock in follow-on offerings,

   net of issuance costs

 

 

271,520

 

 

 

 

Payments of financing related costs

 

 

(35

)

 

 

 

Proceeds from exercise of stock options and employee stock purchase plan

 

 

280

 

 

 

806

 

Net cash provided by financing activities

 

 

271,765

 

 

 

806

 

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

 

 

220,209

 

 

 

(40,706

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

248,265

 

 

 

224,857

 

Cash, cash equivalents and restricted cash, end of period

 

$

468,474

 

 

$

184,151

 

Non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Vesting of early exercised options and restricted stock

 

$

8

 

 

$

18

 

Unpaid financing-related costs

 

$

262

 

 

$

 

Unpaid portion of property and equipment purchases included in

   period-end accounts payable and accrued liabilities

 

$

570

 

 

$

317

 

 

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

 

 

 

 

6


 

MYOKARDIA, INC.

Notes to Unaudited Condensed Consolidated Financial Statements

 

 

1. Organization

MyoKardia, Inc. (the “Company”) is a clinical-stage biopharmaceutical company pioneering a precision medicine approach to discover, develop and commercialize targeted therapies for the treatment of serious and neglected rare cardiovascular diseases. The Company’s initial focus is on the treatment of heritable cardiomyopathies, a group of rare, genetically driven forms of heart failure that result from biomechanical defects in cardiac muscle contraction. MyoKardia’s most advanced program, mavacamten, is in four clinical trials, including a pivotal Phase 3 study for the treatment of hypertrophic cardiomyopathy. A second clinical-stage candidate, MYK-491, is in a Phase 2a multiple-ascending dose study in patients with stable systolic heart failure. The Company was incorporated on June 8, 2012 in Delaware and its corporate headquarters and operations are in South San Francisco, California.

 

Liquidity

 

The Company has incurred significant operating losses since inception and has an accumulated deficit of $240.0 million as of March 31, 2019. The Company has relied on its ability to fund its operations through private and public equity financings, and to a lesser extent, through a license and collaboration arrangement with a collaboration partner, Sanofi S.A. (“Sanofi”), via its subsidiary, Aventis Inc. As discussed further in Note 3, the collaboration agreement with Sanofi ended on December 31, 2018 and the Company will no longer record revenues from Sanofi in 2019 nor will it receive reimbursements of research and development expenses after June 30, 2019. The Company has not yet received regulatory approval to commercialize or sell any product and does not have customers. Management expects operating losses and negative operating cash flows to continue for the foreseeable future. As the Company continues to incur losses, a transition to profitability is dependent upon the successful development, approval, and commercialization of the Company’s products and product candidates and the achievement of a level of revenues adequate to support its cost structure. The Company’s ultimate success depends on the outcome of its research and development activities. The Company expects to incur additional losses and negative cash flows for the foreseeable future and it anticipates the need to raise additional capital to fully implement its business plan. The Company intends to raise such capital through the issuance of additional equity, debt and/or strategic alliances with partner companies. There is no assurance that such financing will be available on terms acceptable to the Company, if at all.  

 

On March 8, 2018, the Company filed a Registration Statement on Form S-3ASR (the “2018 Shelf Registration Statement”) covering the potential offering, issuance, and sale of an indeterminate amount of common stock, preferred stock, debt securities, warrants and/or units. In March 2019, the Company completed a follow-on offering under the 2018 Shelf Registration Statement pursuant to which the Company issued 5,663,750 shares of common stock at a price of $51.00 per share, which includes 738,750 shares sold directly to the underwriters upon exercise of their option to purchase up to 738,750 shares of the Company’s common stock within 30 days of the offering. During the three months ended March 31, 2019, the Company received proceeds totaling approximately $271.2 million from the offering, net of underwriting discounts and commissions and offering expenses.

 

As of March 31, 2019, the Company had $628.3 million of cash, cash equivalents and investments (short-term and long-term) and management believes that these amounts will be sufficient to meet the Company’s anticipated operating and capital expenditure requirements for the twelve months following the date of this Form 10-Q. Management’s belief with respect to its ability to fund operations is based on estimates that are subject to risks and uncertainties. If actual results are different from management’s estimates, the Company may need to seek additional funding.

 

 

2. Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying condensed consolidated financial statements are unaudited, include the Company’s accounts and those of its wholly-owned subsidiary and have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The Company currently operates in one business segment, which is the identification, development and commercialization of therapies for the treatment of serious and neglected rare cardiovascular diseases and has a single reporting and operating unit. These interim statements, in the opinion of management, reflect all normal recurring adjustments necessary for the fair presentation of the Company’s financial position and results of operations for the interim periods ended March 31, 2019 and 2018.

7


 

The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for the full fiscal year or any interim period and should be read in conjunction with the audited financial statements for the year ended December 31, 2018 and the notes thereto, which are included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2018. The significant accounting policies used in preparation of these condensed consolidated financial statements for the three months ended March 31, 2019 are consistent with those discussed in Note 2 to the consolidated financial statements in the Company’s 2018 Annual Report on Form 10-K and are updated below as necessary.

Accounting Policies - Leases

The Company determines if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets and liabilities are presented separately on our condensed consolidated balance sheets. The Company does not have any finance leases.

Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term beginning at the commencement date. As the Company’s leases do not provide enough information to determine an implicit interest rate, the Company determines an incremental borrowing rate based on the information available as of the lease commencement date in determining the present value of future payments. The operating lease ROU assets also include any lease payments made and excludes lease incentives and initial direct costs incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Lease agreements that contain lease and non-lease components are accounted for as a single lease component.

Cash as Reported in Condensed Consolidated Statements of Cash Flows

Cash as reported in the condensed consolidated statements of cash flows includes the aggregate amounts of cash and cash equivalents and restricted cash as presented on the condensed consolidated balance sheets and consists of (in thousands):

 

 

 

March 31,

2019

 

 

December 31,

2018

 

 

March 31,

2018

 

 

December 31,

2017

 

Cash and cash equivalents

 

$

466,254

 

 

$

246,122

 

 

$

183,865

 

 

$

224,571

 

Restricted cash - noncurrent

 

 

2,220

 

 

 

2,143

 

 

 

286

 

 

 

286

 

Total cash, cash equivalents and restricted cash

 

$

468,474

 

 

$

248,265

 

 

$

184,151

 

 

$

224,857

 

 

Use of Estimates

 

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, other comprehensive gain (loss) and the related disclosures. On an ongoing basis, management evaluates its estimates, including estimates related to license and collaboration revenues, accrued clinical trial and manufacturing development expenses, stock-based compensation expense, income tax expense and operating leases. Significant estimates in these condensed consolidated financial statements include estimates made in connection with accrued research and development expenses, stock-based compensation expense, leases, income tax expenses and revenue. The Company bases its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. Actual results may differ from those estimates or assumptions.

Adopted Accounting Pronouncements – Leases

 

Effective January 1, 2019, the Company adopted Accounting Standards Codification Topic 842, Leases (“ASC 842”), which requires lessees to recognize a right-of-use asset (“ROU”) and a lease liability on the balance sheet for all leases except for short-term leases with a lease term of twelve months or less. For lessees, leases continue to be classified as either operating or finance leases in the income statement. Lessor accounting is similar to the prior model but updated to align with certain changes to the lessee model. Lessors continue to classify leases as operating, direct financing or sales-type leases. The Company elected to adopt ASC 842 under the transition method that allows for the application of the new guidance at the beginning of the adoption period without recasting comparative periods. In addition, the Company elected the practical expedient that allows for the separate lease components and non-lease components of a lease to be combined and accounted for as a single lease component. The Company also elected transition practical expedients to the implementation of the lease standard, as follows:  (1) the Company did not reassess whether any expired or existing contracts, which had commenced before January 1, 2019, the date of adoption, are or contain leases  (2) the Company did not reassess the lease classification for any expired or existing leases and (3) the Company did not reassess the initial direct costs for any existing leases.

8


 

All of the Company’s existing leases are operating leases for property at its South San Francisco facilities, which historically have been accounted for as operating leases, and under ASC 842 were also determined to be operating leases. The Company also reviewed its open contracts as of the date of adoption and determined that none had terms and conditions that would represent ROU assets or liabilities that would be considered embedded leases.

 

Upon adoption, the Company recognized ROU assets and related lease liabilities totaling $2.1 million, representing the present value of future lease payments of each lease utilizing the Company’s incremental borrowing rate (“IBR”), which is the estimated borrowing rate of a collateralized loan over the remaining term of the lease. Also upon adoption, a deferred rent amount of $0.2 million as of December 31, 2018 was reclassified to the ROU assets, reducing the carrying value to $1.9 million. The increase in ROU assets and related lease liabilities since adoption of ASC 842 during the first quarter of 2019 resulted from the Company entering into an additional facility operating lease in South San Francisco.

Adopted Accounting Pronouncements - Other

In June 2018, the FASB issued ASU No. 2018-07 (Topic 718), Compensation – Stock Compensation. The update represents an expansion of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period). The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The Company has adopted ASU 2018-17 in the first quarter of 2019 and did not have a material impact to the Company’s financial statements.

Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the impact of recently issued standards that are not yet effective will not have a material impact on the Company’s consolidated financial statements upon adoption.

In August 2018, the FASB issued ASU 2018-13 (Topic 820), Fair Value Measurement, which modifies the disclosure requirements in Topic 820 by removing requirements for disclosing (i) amounts of and reasons for transfers between the Level 1 and Level 2 hierarchies, (ii) the policy for timing of transfers between levels and (iii) the valuation processes for Level 3 fair value measurements. The ASU 2018-13 amendment also adds requirements for disclosure of changes in unrealized gains and losses for the period relating to Level 3 fair value measurements and other factors considered in the valuation of Level 3 investments. This amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company has evaluated this amendment and it is not expected to have a material impact to the Company’s financial statements.

In June 2016, the FASB issued ASU No. 2016-13 (Topic 326), Financial Instruments –Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which requires measurement and recognition of expected credit losses for financial assets by requiring an allowance to be recorded as an offset to the amortized cost of such assets. For available-for-sale debt securities, expected credit losses should be estimated when the fair value of the debt securities is below their associated amortized costs. This amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  Early adoption is permitted. The modified retrospective approach should be applied upon adoption of this new guidance. The Company has evaluated this amendment and it is not expected to have a material impact to the Company’s financial statements.

 

 

3. Sanofi License and Collaboration Agreement

Sanofi (Aventis Inc.)

Agreement Overview and Termination

In August 2014, the Company entered into an exclusive License and Collaboration Agreement (“Collaboration Agreement”) with Aventis Inc., a wholly-owned subsidiary of Sanofi, for the research, development and potential commercialization of pharmaceutical products for the treatment, prevention and diagnosis of hypertrophic and dilated cardiomyopathy, as well as potential additional indications. During the period from August 2014 through December 2018, Sanofi paid the Company a total of $105.0 million in cash to perform research and development on the development of such products, as well as for granting to Sanofi certain royalty- bearing licenses. Of the $105.0 million, $0.7 million was attributed to a freestanding convertible preferred stock call option and $104.3 million was recognized as revenue during the period from August 2014 through December 31, 2018, the date on which the Company received a notice of termination of the Collaboration Agreement.

9


 

The Collaboration Agreement provided for a termination clause whereby on or before December 31, 2018, Sanofi was required to notify the Company of its intent to continue the collaboration. The continuation would have committed Sanofi to specific research and development activities in support of the commercialization of the Company’s products as well as resulted in a continuation of its obligation under the cost sharing portion of the collaboration to co-fund development as discussed further below. On December 31, 2018 Sanofi notified the Company it was terminating the Collaboration Agreement. Under the terms of the termination:

 

Sanofi will reimburse the Company for certain research and development costs through June 30, 2019, after which such time such reimbursements will discontinue;

 

the Company recovered global rights to all programs in its portfolio, including lead clinical-stage candidates, mavacamten and MYK-491; and

 

Sanofi will remain eligible to receive royalties associated with any potential HCM-1 products that will range from mid-single to low-double digits in the U.S. (there is no royalty obligation to Sanofi for sales outside the U.S.).

The Company determined that Sanofi was a related party of the Company due to its previous collaborative relationship, certain royalty-bearing license obligations on future sales of HCM-1 in the United States, and that it was the Company’s only partner. As of December 31, 2018, Sanofi was also a beneficial shareholder of the Company’s common stock. However in February 2019, Sanofi sold all its holdings of the Company’s common stock.

History of the Collaboration Agreement

Under the Collaboration Agreement, the Company granted Sanofi royalty-bearing licenses to develop and commercialize products resulting from its lead candidate programs HCM-1, HCM-2 and DCM-1. The licenses provided Sanofi with worldwide rights in the case of DCM-1 and rights outside the United States with respect to the HCM-1 and HCM-2 programs. The terms of the Collaboration Agreement also stated that the Company was responsible for conducting research and development activities through early human efficacy studies for all three programs, except for specified research activities to be conducted by Sanofi.

Upon entering into this agreement, the Company received an up-front non-refundable cash payment of $35.0 million and Sanofi made an up-front equity purchase of $10.0 million (additional equity investments from Sanofi totaling $26.5 million were received subsequent to the effective date of the Collaboration Agreement). The Company was also eligible to receive additional payments and services, as follows:

 

a one-time, non-refundable payment of $25.0 million contingent upon submission of an Investigational New Drug (“IND”) application before certain regulatory authorities for its DCM-1 program;

 

a non-refundable continuation payment of $45.0 million contingent upon Sanofi’s notification of its decision to continue the agreement beyond December 31, 2016; and

 

up to $15.0 million in research and development funding for the lead compound in each program if studies leading to proof-of-concept (“POC”) were extended beyond December 31, 2018;

 

up to $45.0 million in funding from Sanofi of approved in-kind research and clinical activities.

During the fourth quarter of 2016, the Company submitted an IND application to the U.S. Food and Drug Administration and as a result, the Company received the $25.0 million milestone payment from Sanofi.

In December 2016, Sanofi provided notice to the Company of its election to continue the collaboration through December 31, 2018 pursuant to the terms of the Collaboration Agreement. In connection with Sanofi’s decision to continue the collaboration, the Company received the $45.0 million milestone payment in January 2017.

Under the terms of the agreement, the Company was also entitled to receive tiered royalties ranging from the mid-single digits to the mid-teens on net sales of certain HCM-1, HCM-2 and DCM-1 finished products outside the United States and on net sales of certain DCM-1 finished products in the United States.

Revenue Recognition

The Company evaluated the Collaboration Agreement and determined that it had the following performance obligations:

 

1.

the licenses of Company intellectual property to Sanofi for each of the HCM-1, HCM-2 and DCM-1 programs, and

 

2.

the performance of research and development services, including regulatory support, for each of the three programs.

10


 

The Company considered whether the licenses had standalone functionality and were capable of being distinct; however, given the fact that the research and development services were of such a specialized nature that could only be performed by the Company and Sanofi could not benefit from the intellectual property licenses without the Company’s performance, the Company determined that the intellectual property licenses were not distinct from the research and development services and thus the license and research and development services for each program were combined into three separate performance obligations.

Contract Term

For revenue recognition purposes, the Company determined that the Collaboration Agreement was a period to period contract for which the Company had enforceable rights and obligations from inception through the initial term of December 31, 2016. Sanofi had the right to terminate the Collaboration Agreement prior to December 31, 2016 or to extend the contract term through December 31, 2018. If Sanofi had elected to terminate the agreement, the termination would have taken effect on December 31, 2016 and all licensed rights would have reverted to the Company. The Company did not have any obligation to reimburse Sanofi any portion of the payments received if Sanofi had terminated the agreement.

In December 2016, Sanofi elected to continue the Collaboration Agreement through an extended term ending December 31, 2018 and made the $45.0 million continuation payment to the Company in January 2017. The Company determined that the extended term was to be treated as a separate contract because such an extension was not probable at the inception of the contract, the extension represented additional goods and services, and such activities were priced commensurate to the effort required and do not involve any significant discount. It was also concluded that the extended term provided the Company with enforceable rights and obligations for the two-year period ended December 31, 2018.

Because Sanofi retained the option in the Collaboration Agreement to extend the arrangement, neither party was committed to perform and the contract did not have enforceable rights and obligations beyond December 31, 2018.

Transaction Price

The Company’s assessment of the transaction price included an analysis of amounts to which it was expected to be entitled for providing goods or services to the customer which at contract inception consisted of the upfront cash payment, valued at $34.3 million, net of the fair value of $0.7 million allocated to the option provided to Sanofi to acquire equity, and variable consideration of $25.0 million, subject to an IND application. Sanofi paid the Company the $25.0 million milestone payment upon the Company’s application for the IND. In 2016, after the IND application was made and when the Company determined it was deemed probable that significant reversal in the amount of cumulative revenue recognized will not occur, the Company included this amount in the transaction price. As of December 31, 2016, all performance obligations associated with the initial term were satisfied.    

The extended term (from January 1, 2017 to December 31, 2018) had a fixed fee of $45.0 million, paid by Sanofi contemporaneously with the notice of continuation of the contract. The Company therefore determined that the transaction price for this extended term was $45.0 million.

As previously noted above, the Collaboration Agreement also included up to $45.0 million in funding from Sanofi of approved in-kind research and clinical activities. Sanofi was the decision maker on how to provide these services and such services were used in the development of joint program technology which is co-owned by both parties. As such the Company concluded that these in-kind contributions did not constitute consideration paid by Sanofi to the Company.

Any consideration related to sales-based royalties was to be recognized when the related sales occurred and therefore has also been excluded from the transaction price.

Methodology for Recognition

Since the Company determined that the three performance obligations were satisfied over time, the Company selected a single revenue recognition method that it believed most faithfully depicted the Company’s performance in transferring control of the services. GAAP allows entities to choose between two methods to measure progress toward complete satisfaction of a performance obligation:  

 

1. Output methods - recognize revenue on the basis of direct measurements of the value to the customer of the goods or services transferred to date relative to the remaining goods or services promised under the contract (e.g. surveys of performance completed to date, appraisals of results achieved, milestones reached, time elapsed, and units produced, or units delivered); or

11


 

2. Input methods - recognize revenue on the basis of the entity’s efforts or inputs to the satisfaction of a performance obligation (e.g., resources consumed, labor hours expended, costs incurred, or time elapsed) relative to the total expected inputs to the satisfaction of that performance obligation.

 

The Company utilized a cost-based input method to measure proportional performance and calculated the corresponding amount of revenue to recognize. The Company believed this was the best measure of progress because other measures did not reflect how the Company executed its performance obligations under the contract with Sanofi. In applying the cost-based input methods of revenue recognition, the Company used actual costs incurred relative to budgeted costs to fulfill the combined performance obligations. Revenue was recognized based on actual costs incurred as a percentage of total actual and budgeted costs as the Company completed its performance obligations, which were fulfilled on December 31, 2018. A cost-based input method of revenue recognition requires management to make estimates of costs to complete the Company’s performance obligations. In making such estimates, significant judgment is required to evaluate assumptions related to cost estimates. The cumulative effect of revisions to estimated costs to complete the Company’s performance obligations were recorded in the period in which changes were identified and amounts could be reasonably estimated.

 

For the three months ended March 31, 2019 and 2018, the Company recognized zero and $5.3 million of collaboration and license revenue, respectively.  The Company will not recognize any further revenue from the Collaboration Agreement.    

 

There were no contract assets or liabilities as of March 31, 2019.  The following table presents changes in the Company’s contract liabilities, which excludes research and development reimbursements under the cost sharing plan further discussed below, for the three months ended March 31, 2018 (in thousands):

 

 

 

Three Months Ended March 31, 2018

 

 

 

Balance at

Beginning of Period

 

 

Additions

 

 

Deductions

 

 

Balance at End

of Period

 

Contract liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred revenue

 

$

33,558

 

 

$

 

 

$

(5,331

)

 

$

28,227

 

 

Cost Sharing

During the three months ended March 31, 2019 and 2018, the Company has received research and development cost reimbursements from Sanofi under the terms of the Collaboration Agreement.

Since the inception of the Collaboration Agreement and up until the termination date, Sanofi had been conditionally responsible for reimbursing the Company for:

 

(i)

one half or more of the registration program plan (“RPP”) costs after clinical proof-of-concept is established for the lead compound under each of the HCM-1 and HCM-2 programs; and

 

 

(ii)

if the Company has initiated a clinical trial of a compound under a proof-of-concept development plan and not terminated its development thereof and if another additional compound is identified as a development candidate for the same program, the Company is entitled to full reimbursement of pre-proof-of-concept (“pre-POC”) research and development costs on development candidates mutually identified as such additional compounds, with the objective of conducting IND-enabling studies and clinical trials on such candidate.

Effective October 2017, Sanofi is sharing RPP costs for the mavacamten program until June 30, 2019 pursuant to the Collaboration Agreement termination terms. Registration program costs are subject to review and approval by the Company and Sanofi and include amounts incurred relating to clinical trials, development and manufacturing of, and obtaining regulatory approvals for mavacamten, and include direct employee costs and direct out-of-pocket costs incurred, by or on behalf of a party, that are specifically identifiable or reasonably and directly allocable to those activities.

Pursuant to the additional compounds provisions of the Collaboration Agreement, in August 2018 Sanofi agreed to reimburse the Company for eligible costs it has incurred in the development of the MYK-224 compound, which was identified as an additional compound under the HCM-1 program. Eligible costs are subject to review and approval under the same procedures as under the RPP program; reimbursable costs consist of research and development activities agreed to by the Company and Sanofi that were negotiated and budgeted prior to the application for reimbursement. Reimbursements for this compound continued to be received from Sanofi until March 31, 2019, in accordance with the Collaboration Agreement termination terms.

12


 

Estimated reimbursements are invoiced to Sanofi before each interim period based on budgeted amounts. For the RPP program, these estimates consist of one half of the Company’s mavacamten development budget in excess of Sanofi’s mavacamten development budget each interim period. For the MYK-224 compound, these estimates consist of the Company’s entire research and development budget related to the compound for the forthcoming quarter. After each period end, a review of the actual expenses incurred is performed and any adjustments are carried forward to future invoices. Actual amounts received from Sanofi are applied to the applicable interim period to reduce the Company’s research and development expenses.

Due to the termination of the license agreement effective December 31, 2018, the Company will not receive further reimbursements for the MYK-224 compound for any periods subsequent to April 1, 2019 and for the mavacamten compound subsequent to July 1, 2019.  The Company and Sanofi will finalize the accounting for the MYK-224 program during the quarter ending June 30, 2019 and apply any credits or payables to the remaining mavacamten settlement in the quarter ending September 30, 2019.  

The Company recorded $9.9 million and $2.8 million as reductions to research and development expenses for the three months ended March 31, 2019 and 2018, respectively.

The following table presents the Sanofi research and development reimbursement receivables and related prepayment activity during the three months ended March 31, 2019 and 2018 (in thousands):  

 

 

 

Three Months Ended March 31,

 

 

 

2019

 

 

2018

 

Receivable from collaboration partner

 

 

 

 

 

 

 

 

Balance at beginning of the period

 

$

 

 

$

1,013

 

Additions

 

 

 

 

 

 

Deductions

 

 

 

 

 

(1,013

)

Balance at end of period

 

$

 

 

$

 

 

 

 

 

 

 

 

 

 

Prepayment from collaboration partner for mavacamten

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

12,973

 

 

$

4,432

 

Additions for advance billings

 

 

 

 

 

 

Payments received from Sanofi

 

 

 

 

 

6,090

 

Actual expenses incurred

 

 

(9,874

)

 

 

(2,821

)

Balance at end of period

 

$

3,099

 

 

$

7,701

 

 

4. Fair Value Measurements

Financial assets and liabilities are recorded at fair value. The accounting guidance for fair value provides a framework for measuring fair value, clarifies the definition of fair value and expands disclosures regarding fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability (an exit price) in an orderly transaction between market participants at the reporting date. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as follows:

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

Level 2—Inputs other than quoted market prices included in Level 1 are either directly or indirectly observable for the asset or liability through correlation with market data at the measurement date and for the duration of the instrument’s anticipated life.

Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

13


 

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):

 

 

 

Fair Value Measurements at March 31, 2019

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

465,257

 

 

$

465,257

 

 

$

 

 

$

 

U.S. government agency obligations

 

 

98,165

 

 

 

 

 

 

98,165

 

 

 

 

Corporate securities

 

 

63,899

 

 

 

 

 

 

63,899

 

 

 

 

Total

 

$

627,321

 

 

$

465,257

 

 

$

162,064

 

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2018

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

245,194

 

 

$

245,194

 

 

$

 

 

$

 

U.S. government agency obligations

 

 

85,033

 

 

 

 

 

 

85,033

 

 

 

 

Corporate securities

 

 

63,679

 

 

 

 

 

 

63,679

 

 

 

 

Total

 

$

393,906

 

 

$

245,194

 

 

$

148,712

 

 

$

 

 

The following table is a summary of amortized cost, unrealized gain and loss, and fair value of the Company’s marketable securities by contractual maturities (in thousands):

 

 

 

Fair Value Measurements at March 31, 2019

 

 

 

Amortized Cost

 

 

Unrealized Gain

 

 

Unrealized Loss

 

 

Fair Value

 

Cash equivalents (due within 90 days)

 

$

465,257

 

 

$

 

 

$

 

 

$

465,257

 

Short-term investments (due within one year)

 

 

92,522

 

 

 

49

 

 

 

(31

)

 

 

92,540

 

Long-term investments (due between one and two years)

 

 

69,241

 

 

 

283

 

 

 

 

 

 

69,524

 

Total

 

$

627,020

 

 

$

332

 

 

$

(31

)

 

$

627,321

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at December 31, 2018

 

 

 

Amortized Cost

 

 

Unrealized Gain

 

 

Unrealized Loss

 

 

Fair Value

 

Cash equivalents (due within 90 days)

 

$

245,194

 

 

$

 

 

$

 

 

$

245,194

 

Short-term investments (due within one year)

 

 

68,656

 

 

 

 

 

 

(92

)

 

 

68,564

 

Long-term investments (due between one and two years)

 

 

80,118

 

 

 

98

 

 

 

(68

)

 

 

80,148

 

Total

 

$

393,968

 

 

$

98

 

 

$

(160

)

 

$

393,906

 

 

14


 

5. Leases

As of March 31, 2019, the Company has operating leases recorded on its balance sheet for approximately 70,500 square feet of office and lab space in three separate facilities in South San Francisco, California (the “Existing Facilities”).  All of the lease agreements associated with the Existing Facilities expire on or before April 1, 2020 and there are no options to extend the leases. The Company does not plan to cancel the existing lease agreements for its Existing Facilities prior to their respective expiration dates. The Company does not have any leases that would be classified as finance leases.

Information related to operating leases as of March 31, 2019 and upon adoption of ASC 842 on January 1, 2019 is as follows (in thousands, except for percentages and years).

 

 

 

March 31,

2019

 

 

January 1,

2019

 

Assets

 

 

 

 

 

 

 

 

Operating lease right-of-use assets

 

$

2,473

 

 

$

1,940

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Operating lease liabilities - current

 

$

2,529

 

 

$

2,126

 

Operating lease liabilities – noncurrent (1)

 

 

73

 

 

 

 

 

 

$

2,602

 

 

$

2,126

 

 

 

 

 

 

 

 

 

 

Weighted average remaining lease term (years)

 

 

0.9

 

 

 

1.0

 

Weighted average discount rate

 

 

6

%

 

 

6

%

 

 

(1)

Operating lease liabilities – noncurrent is included in other long-term liabilities in the consolidated balance sheets.

 

Information related to operating lease activity during the three months ended March 31, 2019 follows (in thousands):

 

 

 

Three Months

Ended

 

 

 

March 31, 2019

 

Operating lease right-of-use assets obtained in exchange

   for lease obligations

 

$

1,095

 

 

 

 

 

 

Operating lease rental expense

 

$

669

 

 

 

 

 

 

Operating lease payments

 

$

727

 

 

Future annual payments of operating lease liabilities as of March 31, 2019 are as follows (in thousands):

 

Year ending December 31:

 

Amount

 

2019 (nine months remaining)

 

$

2,280

 

2020

 

 

387

 

Total lease payments

 

 

2,667

 

Less:  discount

 

 

(65

)

Present value of operating lease liabilities

 

$

2,602

 

 

In September 2018, the Company entered into a noncancelable operating lease (the “Lease”) for approximately 129,800 square feet of space in Brisbane, California (the “New Facility”). The date on which the Company will record the ROU asset and lease liability on its balance sheet (the “Commencement Date”), as well as when it becomes responsible for paying rent under the Lease, will be the date the premises are ready for occupancy, currently anticipated to be January 2020. The Lease expires 10 years after the Commencement Date. The Lease grants the Company an option to extend the Lease for an additional 10-year period. Future minimum rental payments under the Lease during the 10-year term are $93.2 million in the aggregate. The Lease further provides that the Company is obligated to pay to the landlord certain costs, including taxes and operating expenses.

15


 

In September 2018, the Company provided a standby letter of credit of $1.9 million as security for its obligations under the Lease. This standby letter of credit, together with standby letters on Existing Facilities, are classified on the balance sheet as restricted cash and other.  

Future annual minimum operating lease payments due under the Lease are as follows (in thousands):

 

Year ending December 31:

 

Amount1

 

2019 (nine months remaining)

 

$

 

2020

 

 

5,454

 

2021

 

 

8,461

 

2022

 

 

8,757

 

2023

 

 

9,063

 

Thereafter

 

 

61,444

 

Total

 

$

93,179

 

 

(1)

The table above is prepared under the assumption that the Commencement Date at the New Facility will be January 1, 2020.

The adoption of ASC 842 did not materially affect the amount or timing of operating lease rent expense to be recognized during the year ended December 31, 2019 as compared to accounting under the prior guidance. Operating lease rent expense for the three months ended March 31, 2019 and 2018 was $0.7 million and $0.4 million, respectively, which is included in operating expenses on the Company’s condensed consolidated statements of operations and comprehensive loss. The operating leases require the Company to share in prorated operating expenses and property taxes based upon actual amounts incurred; those amounts are not fixed for future periods and, therefore, are not included in the future commitments listed above.

 

6. Balance Sheet Components

Property and Equipment

Property and equipment consist of the following (in thousands):

 

 

 

March 31,

2019

 

 

December 31,

2018

 

Scientific equipment

 

$

9,679

 

 

$

9,126

 

Furniture and equipment

 

 

1,450

 

 

 

1,248

 

Capitalized software

 

 

389

 

 

 

302

 

Leasehold improvements

 

 

524

 

 

 

451

 

Total