Item 9A. Controls and Procedures
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures:
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As of the end of the period covered by this Annual Report on Form 10-K, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
(b) Management’s Annual Report on Internal Control Over Financial Reporting:
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2020 based on the framework in Internal Control—Integrated Framework
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2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2020.
The independent registered public accounting firm, Marcum LLP, has issued an attestation report on our internal control over financial reporting. The report on the audit of internal control over financial reporting is included in this Annual Report on Form 10-K.
(c) Changes in Internal Control Over Financial Reporting:
There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
None.
PART III
Certain information required by Part III is omitted from this Annual Report on Form 10-K because we will file a definitive Proxy Statement for the Annual Meeting of Stockholders pursuant to Regulation 14A of the Securities Exchange Act of 1934 (the Proxy Statement), not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and the applicable information included in the Proxy Statement is incorporated herein by reference.
Item 10. Directors, Executive Officers, and Corporate Governance
Information required by this Item 10 will be presented in the Proxy Statement “Election of Directors,” “Management Executive Officers,” “Section 16(a) Beneficial Ownership Reporting Compliance” and “Board of Directors and Corporate Governance,” and is incorporated herein by reference.
Item 11. Executive Compensation
The information required by this Item is incorporated herein by reference to the sections entitled “Executive Compensation,” “Executive Compensation—Compensation Discussion and Analysis” and “Directors’ Compensation” in the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The information required by this Item is incorporated herein by reference to the sections entitled “Security Ownership of Certain Beneficial Owners and Management” and “Equity Compensation Plan Information” in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this Item is incorporated herein by reference to the section entitled “Certain Relationships and Related Transactions” in the Proxy Statement.
Item 14. Principal Accountant’s Fees and Services
Information required by this Item is incorporated herein by reference to the section of the Proxy Statement entitled “Principal Accountant Fees and Services.”
PART IV
Item 15. Exhibits, Financial Statements Schedules
The Company’s consolidated financial statements and related notes thereto are listed and included in this Annual Report on Form 10-K beginning on page F-1. The following exhibits are filed with, or are incorporated by reference into, this Annual Report on Form 10-K.
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EXHIBIT INDEX
Exhibit
Description
2.1
Plan of Conversion (incorporated herein by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 2, 2017).
3.1
Articles of Conversion (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 2, 2017).
3.2
Certificate of Conversion (incorporated herein by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 2, 2017).
3.3
Certificate of Incorporation (incorporated herein by reference to Exhibit 3.3 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 2, 2017).
3.4
Certificate of Designations of Rights, Preferences and Privileges of Series A Convertible Preferred Stock (incorporated herein by reference to Exhibit 3.4 to the Registrant’s Post-Effective Amendment No. 1 to the Registration Statement on Form S-3 (file no. 333-214073) filed with the Commission on July 31, 2017).
3.5
Certificate of Designations of Rights, Preferences and Privileges of Series B Preferred Stock (incorporated herein by reference to Exhibit 3.5 to the Registrant’s Post-Effective Amendment No. 1 to the Registration Statement on Form S-3 (file no. 333-214073 incorporated by reference into file no. 333-212373) filed with the Commission on July 31, 2017).
3.6
Certificate of Amendment of Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 27, 2017).
3.7
Certificate of Amendment of Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8 K filed with the Commission on June 11, 2019).
3.8
Amended and Restated Bylaws (incorporated herein by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on May 27, 2020).
4.2
Specimen of Stock Certificate (incorporated herein by reference to Exhibit 4.2 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 12, 2018).
4.3
Description of Securities (incorporated herein by reference to Exhibit 4.3 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 6, 2019).
10.1
Genesis Biopharma, Inc. 2011 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8 K filed with the Commission on October 20, 2011).#
10.2
Form of Incentive Stock Option Agreement under the Genesis Biopharma Inc. 2011 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 25, 2020).#
10.3
Form of Non-Qualified Stock Option Agreement under the Genesis Biopharma Inc. 2011 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 25, 2020).#
10.4
Lion Biotechnologies, Inc. 2014 Equity Incentive Plan, as amended (incorporated herein by reference to Appendix A to the Registrant’s Definitive Proxy Statement on Schedule 14A filed with the Commission on July 7, 2016).#
10.5
Form of Incentive Stock Option Agreement under the Lion Biotechnologies, Inc. 2014 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.7 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 25, 2020).#
10.6
Form of Non-Qualified Stock Option Agreement under the Lion Biotechnologies, Inc. 2014 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.8 to the Registrant’s Annual Report on Form 10-K filed with the Commission on February 25, 2020).#
10.7
Iovance Biotherapeutics, Inc. 2018 Equity Incentive Plan, as amended (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 9, 2020).#
10.8
Form of Incentive Stock Option Agreement under the Iovance Biotherapeutics, Inc. 2018 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.10 of Registrant’s Annual Report on Form 10-K filed with the Commission on February 25, 2020).#
10.9
Form of Non-Qualified Stock Option Agreement under the Iovance Biotherapeutics, Inc. 2018 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.11 of Registrant’s Annual report on Form 10-K filed with the Commission on February 25, 2020).#
10.10
Iovance Biotherapeutics, Inc, 2020 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 9, 2020).#
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10.11
Patent License Agreement by and between Genesis Biopharma, Inc. and the National Institutes of Health effective October 5, 2011 (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K/A filed with the Commission on December 13, 2011).*
10.12
Cooperative Research and Development Agreement for Intramural-PHS Clinical Research, dated August 5, 2011, by and between the U.S. Department of Health and Human Services, as represented by the National Cancer Institute, and Genesis Biopharma, Inc. (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K/A (Amendment No. 2) filed with the Commission on November 29, 2011).
10.13
Form of Director Stock Award Agreement (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on July 25, 2013).#
10.14
Form of Registration Rights Agreement by and among Lion Biotechnologies, Inc. and the Investors thereunder (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on October 31, 2013).
10.15
Cooperative Research and Development Agreement for the Development and Evaluation of the NCI Proprietary Adoptive Cell Transfer Immunotherapy Using Tumor Infiltrating Lymphocytes in Patients with Metastatic Melanoma, Bladder, Lung, Triple-negative Breast, and HPV-associated Cancers, Utilizing Lion Biotechnologies, Inc.’s Business Development Expertise in Adoptive Cell Transfer Immunotherapy, executed by Lion Biotechnologies, Inc. on January 22, 2015 (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on January 27, 2015).*
10.16
Patent License Agreement, dated February 9, 2015, by and between Lion Biotechnologies, Inc. and the National Institutes of Health (incorporated herein by reference to Exhibit 10.47 to the Registrant’s Annual Report on Form 10 K filed with the Commission on March 16, 2015).*
10.17
Patent License Agreement, dated February 10, 2015, by and between Lion Biotechnologies, Inc. and the National Institutes of Health (incorporated herein by reference to Exhibit 10.46 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 16, 2015).*
10.18
First Amendment to Patent License Agreement, effective October 2, 2015, by and between Lion Biotechnologies, Inc. and the National Institutes of Health (incorporated herein by reference to Exhibit 10.47 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 6, 2015).*
10.19
Form of Securities Purchase Agreement, dated June 2, 2016, by and among Lion Biotechnologies, Inc. and the Investors thereunder (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 3, 2016).
10.20
Form of Registration Rights Agreement, dated June 2, 2016, by and among Lion Biotechnologies, Inc. and the Investors thereunder (incorporated herein by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed with the Commission on June 3, 2016).
10.21
Amendment #2 to the Cooperative Research and Development Agreement #02734, dated August 18, 2016, by and between the National Cancer Institute and Lion Biotechnologies, Inc. (incorporated herein by reference to Exhibit 10.3 to Amendment No. 2 to Registrant’s Registration Statement on Form S 1 filed with the Commission on August 31, 2016).
10.22
Manufacturing Services Agreement, dated November 23, 2015, by and between WuXi AppTec, Inc. and Lion Biotechnologies, Inc. (incorporated herein by reference to Exhibit 10.36 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 9, 2017).*
10.23
Strategic Alliance Agreement, effective as of April 17, 2017, between Lion Biotechnologies, Inc. and The University of Texas M.D. Anderson Cancer Center (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Quarterly Report on Form 10 Q filed with the Commission on August 3, 2017).*
10.24
First Amendment to the Strategic Alliance Agreement by and between Iovance Biotherapeutics, Inc. and The University of Texas M.D. Anderson Cancer Center, effective as of August 2, 2017 (incorporated herein by reference to Exhibit 10.34 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 12, 2018).
10.25
Second Amendment to the Strategic Alliance Agreement by and between Iovance Biotherapeutics, Inc. and The University of Texas M.D. Anderson Cancer Center, effective February 16, 2018 (incorporated herein by reference to Exhibit 10.35 to the Registrant’s Annual Report on Form 10-K filed with the Commission on March 12, 2018).
10.26
Executive Employment Agreement, effective as of June 1, 2016, by and between Maria Fardis and Lion Biotechnologies, Inc. (incorporated herein by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10 Q filed with the Commission on August 9, 2016).*#
10.27
Severance Agreement and General Release, effective as of July 8, 2020, between Iovance Biotherapeutics, Inc. and Timothy Morris (incorporated herein by reference to Exhibit 10.4 to the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 6, 2020).*#
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10.28
Executive Employment Agreement, effective as of September 30, 2016, by and between Frederick G. Vogt and Lion Biotechnologies, Inc. (incorporated herein by reference to Exhibit 10.32 to the Registrant’s Annual Report on Form 10 K filed with the Commission on March 12, 2018).#
10.29
Executive Employment Agreement effective as of July 18, 2019, by and between Friedrich-Reinhard Graf Finck von Finckenstein, M.D. and Iovance Biotherapeutics, Inc. (incorporated herein by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 1, 2019).
10.30
Executive Employment Agreement, effective as of December 14, 2020, by and between Jean-Marc Bellemin and Iovance Biotherapeutics, Inc.# **+
10.31
Office Lease, effective as of August 4, 2016, by and between Lion Biotechnologies, Inc. and Hudson Skyway Landing, LLC (incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8 K filed with the Commission on August 8, 2016).
10.32
Office Lease, effective as of October 19, 2018, by and between Iovance Biotechnologies, Inc. and Hudson Skyway Landing, LLC (incorporated herein by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8 K filed with the Commission on October 25, 2018).
10.33
First Amendment to the Office Lease, effective as of June 19, 2019, between Iovance Biotherapeutics, Inc. and Hudson Skyway Landing, LLC (incorporated herein by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 4, 2019).
10.34
Second Amendment to the Office Lease, effective as of February 8, 2021, by and between Iovance Biotherapeutics, Inc. and Hudson Skyway Landing, LLC (incorporated herein by reference to Exhibit 10.2 of the Registrant’s Current Report on Form 8-K filed with the Commission on February 9, 2021).
10.35
First Amendment to the Office Lease, effective as of February 8, 2021, by and between Iovance Biotherapeutics, Inc. and Hudson Skyway Landing, LLC (incorporated herein by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed with the Commission on February 9, 2021).
10.36
Lease Agreement, effective as of May 28, 2019, by and between Iovance Biotherapeutics, Inc. and 300 Rouse Boulevard, LLC (incorporated herein by reference to Exhibit 10.3 of the Registrant’s Current Report on Form 8-K filed with the Commission on June 3, 2019).
10.37
First Amendment to the Lease Agreement, effective as of August 20, 2019, between Iovance Biotherapeutics, Inc. and 300 Rouse Boulevard, LLC (incorporated herein by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on November 4, 2019).
10.38
Second Amendment to the Lease Agreement, effective as of June 30, 2020, between Iovance Biotherapeutics, Inc. and 300 Rouse Boulevard, LLC (incorporated herein by reference to Exhibit 10.3 of the Registrant’s Quarterly Report on Form 10-Q filed with the Commission on August 6, 2020).
10.39
Lease Agreement, effective as of February 8, 2021, by and between Iovance Biotherapeutics, Inc. and ARE-San Francisco No. 63, LLC (incorporated herein by reference to Exhibit 10.1 of the Registrant’s Current Report on Form 8-K filed with the Commission on February 9, 2021).
21.1
Subsidiaries of the Company.**
23.1
Consent of Independent Registered Public Accounting Firm. **
24.1
Power of Attorney (included on the signature page of this Annual Report).
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. **
31.2
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. **
32.1
Section 1350 Certification of Chief Executive Officer (furnished herewith). **
32.2
Section 1350 Certification of Chief Financial Officer (furnished herewith). **
101
The following financial information from the Annual Report on Form 10-K of Iovance Biotherapeutics, Inc. for the year ended December 31, 2020, formatted in XBRL (eXtensible Business Reporting Language): (1) Balance Sheets as of December 31, 2020 and 2019 (2) Statements of Income for the years ended December 31, 2020 and 2019; (3) Statements of Shareholders’ Equity for the years ended December 31, 2020 and 2019; (4) Statements of Cash Flows for the years ended December 31, 2020 and 2019; and (5) Notes to Financial Statements.
104
Cover Page Interactive Data File – the cover page interactive date file does not appear in the Interactive Date File because its XBRL tags are embedded within the Inline XBRL document.
*
Certain portions of the Exhibit have been omitted based upon a request for confidential treatment filed by us with the Commission. The omitted portions of the Exhibit have been separately filed by us with the Commission.
** Filed herewith.
#
Indicates a management contract or compensatory plan or arrangement.
+ Certain portions of the Exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K.
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Item 16. Form 10-K Summary
We may voluntarily include a summary of information required by Form 10-K under this Item 16. We have elected not to include such summary information.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
IOVANCE BIOTHERAPEUTICS, INC.
Date: February 25, 2021
By:
/s/ Maria Fardis
Name:
Maria Fardis
Title:
Chief Executive Officer
POWER OF ATTORNEY
Know all persons by these presents, that each person whose signature appears below constitutes and appoints Maria Fardis and Jean-Marc Bellemin, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place, and stead, in any and all capacities, to sign any and all amendments to this Annual Report, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming that all said attorneys-in-fact and agents, or any of them or their or his or her substitute or substituted, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Maria Fardis
Chief Executive Officer (Principal
February 25, 2021
Maria Fardis
Executive Officer) and Director
/s/ Jean-Marc Bellemin
Chief Financial Officer and Treasurer
February 25, 2021
Jean-Marc Bellemin
(Principal Financial Officer)
/s/ Michael C. Swartzburg
Vice President, Finance
February 25, 2021
Michael C. Swartzburg
(Principal Accounting Officer)
/s/ Merrill A. McPeak
Director
February 25, 2021
Merrill A. McPeak
/s/ Michael Weiser
Director
February 25, 2021
Michael Weiser
/s/ Ryan D. Maynard
Director
February 25, 2021
Ryan D. Maynard
/s/ Iain Dukes
Director
February 25, 2021
Iain Dukes
/s/ Wayne Rothbaum
Director
February 25, 2021
Wayne Rothbaum
/s/ Athena Countouriotis
Director
February 25, 2021
Athena Countouriotis
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IOVANCE BIOTHERAPEUTICS, INC.
Index to Financial Statements
Contents
Page
Report of Independent Registered Public Accounting Firm
F-1
Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting
F-3
Financial Statements
Consolidated Balance Sheets
F-5
Consolidated Statements of Operations
F-6
Consolidated Statements of Comprehensive Loss
F-7
Consolidated Statements of Stockholders’ Equity
F-8
Consolidated Statements of Cash Flows
F-9
Notes to Consolidated Financial Statements
F-10
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors of
Iovance Biotherapeutics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Iovance Biotherapeutics, Inc. (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on the criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in 2013 and our report dated February 25, 2021, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 10 to the consolidated financial statements, the Company changed its method of accounting for leases in 2019.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Incremental Borrowing Rate (Leases)
Description of the Matter
As discussed in Note 10 to the consolidated financial statements, the Company’s reported right-of-use assets, current lease liabilities and long-term lease liabilities, utilize discount rates to calculate the estimated present value of future lease payments. Since
F-1
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the Company’s leases do not provide an implicit rate, management utilized a third-party valuation specialist to assist in estimating the incremental borrowing rates used in its present value calculation, which required subjectivity. The incremental borrowing rate is the rate of interest that a lessee would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. As of December 31, 2020, the weighted average incremental borrowing rate used to determine the operating lease liability is 8.3%.
Auditing management’s assessment of its incremental borrowing rate is highly subjective and judgmental as the Company has no outstanding debt nor committed credit facilities, secured or otherwise, that would have comparable collateral or similar terms as their underlying leases. Further, changes in the incremental borrowing rate may have a material impact on the measurement of the Company’s right-of-use assets, current lease liabilities and long-term lease liabilities. Based on the level of management judgment, we have determined the incremental borrowing rate to be a critical audit matter. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our valuation specialists, when performing audit procedures to evaluate the reasonableness of management’s estimation of the incremental borrowing rate.
How We Addressed the Matter in Our Audit
Our audit procedures included, amongst others:
● We obtained an understanding, evaluated the design, and tested the operating effectiveness of management’s controls with regards to the methodology, inputs, and assumptions used to determine the incremental borrowing rate, including those over management’s review of its third-party specialist valuation report.
● We obtained an understanding of the factors considered and assumptions made by management and the valuation specialists in developing the estimate of the incremental borrowing rate, the sources of data relevant to these factors and assumptions and the procedures used to obtain the data, and the methods used to calculate the estimate.
● We reviewed the contractual terms of the lease agreements to ensure the commencement dates, any lease term extensions and/or early termination clauses were properly considered in determining the appropriate lease term for calculating the incremental borrowing rates.
● With the assistance of our valuation specialists, we performed an independent estimate of the incremental borrowing rate and compared the results to the Company’s estimate.
● We evaluated the reasonableness of the valuation methods and assumptions used by management and the Company’s valuation specialist to estimate the incremental borrowing rates for borrowing amounts and terms comparable to their outstanding leases by:
o Developing an independent estimate of the incremental borrowing rates with the assistance of our valuation specialists by utilizing third party data related to comparable company borrowings with comparable payment terms.
o Performing a sensitivity analysis on incremental borrowing rates used to determine the impact rate changes could have on the present value calculation of the Company’s operating lease right-of-use assets and operating lease liabilities.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2016.
New York, NY
February 25, 2021
F-2
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the Shareholders and Board of Directors of
Iovance Biotherapeutics, Inc.
Opinion on Internal Control over Financial Reporting
We have audited Iovance Biotherapeutics, Inc.’s (the “Company”) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets as of December 31, 2020 and 2019, and related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows and the related notes for each of the three years in the period ended December 31, 2020 of the Company and our report dated February 25, 2021 expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
F-3
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Because of the inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that degree of compliance with the policies or procedures may deteriorate.
/s/ Marcum LLP
Marcum LLP
New York, NY
February 25, 2021
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IOVANCE BIOTHERAPEUTICS, INC.
Consolidated Balance Sheets
(In thousands, except share and per share information)
December 31,
December 31,
2020
2019
ASSETS
Current Assets
Cash and cash equivalents
$
67,329
$
13,969
Short-term investments
562,108
293,112
Prepaid expenses and other assets
6,663
9,412
Total Current Assets
636,100
316,493
Property and equipment, net
59,159
8,536
Operating lease right-of-use assets
54,756
10,695
Restricted cash
5,525
5,450
Long-term assets
12,918
3,481
Total Assets
$
768,458
$
344,655
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable
$
13,513
$
15,567
Accrued expenses
35,074
16,265
Operating lease liabilities - current
6,284
7,252
Total Current Liabilities
54,871
39,084
Non-Current Liabilities
Operating lease liabilities – noncurrent
45,375
4,248
Other liabilities
11,714
2,352
Total Non-Current Liabilities
57,089
6,600
Total Liabilities
111,960
45,684
Commitments and contingencies (Note 10 and 11)
Stockholders’ Equity
Series A Convertible Preferred stock, $ 0.001 par value; 17,000 shares designated, 194 shares issued and outstanding as of December 31, 2020 and December 31, 2019 (aggregate liquidation value of $ 194 )
—
—
Series B Convertible Preferred stock, $ 0.001 par value; 11,500,000 shares designated, 3,581,119 shares issued and outstanding as of December 31, 2020 and December 31, 2019 (aggregate liquidation value of $ 17,010 )
4
4
Common stock, $ 0.000041666 par value; 300,000,000 shares authorized, 146,874,917 and 126,411,808 shares issued and outstanding as of December 31, 2020 and December 31, 2019, respectively
6
5
Accumulated other comprehensive income
19
220
Additional paid-in capital
1,486,662
869,354
Accumulated deficit
( 830,193 )
( 570,612 )
Total Stockholders’ Equity
656,498
298,971
Total Liabilities and Stockholders’ Equity
$
768,458
$
344,655
The accompanying notes are an integral part of these consolidated financial statements.
F-5
Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
Consolidated Statements of Operations
(In thousands, except per share information)
Years Ended December 31,
2020
2019
2018
Revenues
$
—
$
—
$
—
Costs and expenses
Research and development expenses
201,727
166,023
99,828
General and administrative expenses
60,210
40,849
28,430
Total costs and expenses
261,937
206,872
128,258
Loss from operations
( 261,937 )
( 206,872 )
( 128,258 )
Other income
Interest income, net
2,356
9,316
4,678
Net Loss
( 259,581 )
( 197,556 )
( 123,580 )
Net Loss Per Share of Common Stock, Basic and Diluted
$
( 1.88 )
$
( 1.59 )
$
( 1.27 )
Weighted Average Shares of Common Stock Outstanding, Basic and Diluted
138,301
124,336
97,277
The accompanying notes are an integral part of these consolidated financial statements.
F-6
Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
Consolidated Statements of Comprehensive Loss
(in thousands)
Years Ended December 31,
2020
2019
2018
Net Loss
$
( 259,581 )
$
( 197,556 )
$
( 123,580 )
Other comprehensive loss:
Unrealized (loss) / gain on short-term investments
( 201 )
262
( 42 )
Comprehensive Loss
$
( 259,782 )
$
( 197,294 )
$
( 123,622 )
The accompanying notes are an integral part of these consolidated financial statements.
F-7
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IOVANCE BIOTHERAPEUTICS, INC.
Consolidated Statements of Stockholders' Equity
(In thousands, except share information)
Series A
Series B Convertible
Additional
Accumulated
Total
Preferred Stock
Preferred Stock
Common Stock
Paid-In
Comprehensive
Accumulated
Stockholder
Shares
Amount
Shares
Amount
Shares
Amount
Capital
Income (Loss)
Deficit
Equity
Balance - January 1, 2018
1,694
—
7,378,241
7
73,164,914
3
394,651
—
( 249,180 )
145,481
Stock-based compensation expense
20,027
20,027
Vesting of restricted shares issued for services
39,536
—
—
—
Tax payments related to shares withheld for vested restricted stock units
—
( 223 )
( 223 )
Common stock issued upon exercise of warrants
6,301,216
1
15,753
15,754
Common stock issued upon exercise of stock options
1,336,514
—
9,959
9,959
Conversion of convertible preferred stock into common stock
( 1,500 )
( 1,523,396 )
( 1 )
2,273,396
1
—
Common stock sold in public offering, net of offering costs
40,300,000
1
398,816
398,817
Unrealized loss on short- term investments
( 42 )
( 42 )
Net loss
( 123,580 )
( 123,580 )
Balance - December 31, 2018
194
—
5,854,845
6
123,415,576
5
838,984
( 42 )
( 372,760 )
466,193
Adoption of ASU 2018-07
296
( 296 )
—
Stock-based compensation expense
24,277
24,277
Vesting of restricted shares issued for services
27,514
1
( 1 )
—
Tax payments related to shares withheld for vested restricted stock units
( 312 )
( 312 )
Common stock issued upon exercise of stock options
727,492
—
6,443
6,443
Conversion of convertible preferred stock into common stock
—
( 2,273,726 )
( 2 )
2,273,726
—
2
—
Unrealized loss on short- term investments
262
262
Cancellation of common shares from settlement of dispute
( 32,500 )
( 1 )
( 335 )
( 336 )
Net loss
( 197,556 )
( 197,556 )
Balance - December 31, 2019
194
$
—
3,581,119
$
4
126,411,808
$
5
$
869,354
$
220
$
( 570,612 )
$
298,971
Stock-based compensation expense
40,775
40,775
Vesting of restricted stock shares issued for service
13,449
112
112
Tax payments related to shares withheld for vested restricted stock units
( 284 )
( 284 )
Common stock issued upon exercise of stock options
973,854
9,663
9,663
Common stock sold in public offering, net of offering costs
19,475,806
1
567,042
567,043
Unrealized gain on short- term investments
( 201 )
( 201 )
Net loss
( 259,581 )
( 259,581 )
Balance - December 31, 2020
194
$
—
3,581,119
$
4
146,874,917
$
6
$
1,486,662
$
19
$
( 830,193 )
$
656,498
The accompanying notes are an integral part of these consolidated financial statements.
F-8
Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
Consolidated Statements of Cash Flows
(In thousands)
Years Ended December 31,
2020
2019
2018
Cash Flows from Operating Activities
Net loss
$
( 259,581 )
( 197,556 )
( 123,580 )
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense
40,887
24,277
20,027
Noncash lease expense
7,572
6,954
—
Depreciation and amortization
1,140
1,169
956
Gain on settlement of dispute
—
( 336 )
—
Accretion (amortization) of discounts and premiums on investments
1,865
( 3,421 )
( 1,332 )
Loss on disposal of assets
—
16
9
Changes in assets and liabilities:
Prepaid expenses, other assets, and long-term assets
( 6,688 )
( 3,278 )
( 2,065 )
Operating lease liabilities (Right-of-use assets)
( 11,474 )
( 6,148 )
—
Accounts payable
( 2,964 )
12,706
1,507
Accrued expenses and other liabilities
24,109
6,728
3,229
Net cash used in operating activities
( 205,134 )
( 158,889 )
( 101,249 )
Cash Flows from Investing Activities
Maturities of short-term investments
676,601
514,601
41,000
Purchase of short-term investments
( 947,663 )
( 417,659 )
( 426,081 )
Purchase of property and equipment
( 46,791 )
( 6,917 )
( 1,198 )
Net cash (used in) provided by investing activities
( 317,853 )
90,025
( 386,279 )
Cash Flows from Financing Activities
Tax payments related to shares withheld for vested restricted stock units
( 284 )
( 312 )
( 223 )
Proceeds from the issuance of common stock upon exercise of warrants
—
—
15,754
Proceeds from the issuance of common stock upon exercise of options
9,663
6,443
9,959
Proceeds from the issuance of common stock, net
567,043
—
398,817
Net cash provided by financing activities
576,422
6,131
424,307
Net increase (decrease) in cash, cash equivalents, and restricted cash
53,435
( 62,733 )
( 63,221 )
Cash, Cash Equivalents, and Restricted Cash Beginning of Year
19,419
82,152
145,373
Cash, Cash Equivalents, and Restricted Cash End of Year
$
72,854
$
19,419
$
82,152
Supplemental disclosure of non-cash investing and financing activities:
Net unrealized (loss) gain on short-term investments
$
( 201 )
$
262
( 42 )
Acquisitions of property and equipment included in accounts payable and accrued expense
( 5,094 )
122
—
Conversion of convertible preferred stock to common stock
—
2
1
Vesting of restricted stock units
—
1
—
The accompanying notes are an integral part of these consolidated financial statements.
F-9
Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. GENERAL ORGANIZATION, BUSINESS AND LIQUIDITY
General Organization and Business
Iovance Biotherapeutics, Inc. (the “Company”, “we”, “us” or “our”) is a clinical-stage biopharmaceutical company focused on the development and commercialization of cell therapies as novel cancer immunotherapy products designed to harness the power of a patient’s own immune system to eradicate cancer cells. Tumor infiltrating lymphocyte (“TIL”) therapy is an autologous cell therapy platform technology that was originally developed by the National Cancer Institute (“NCI”), which conducted initial clinical trials in diseases such as metastatic melanoma and cervical cancer. The Company has developed a new, shorter manufacturing process for TIL therapy known as Generation 2 (“Gen 2”), which yields a cryopreserved TIL product. This proprietary and scalable manufacturing method is being further investigated in multiple indications. The Company’s lead product candidates include lifileucel for metastatic melanoma and metastatic cervical cancer. Lifileucel for metastatic cervical cancer was formerly known as LN-145. In addition to metastatic melanoma and metastatic cervical cancer, the Company is investigating the effectiveness and safety of TIL therapy and peripheral blood lymphocyte therapy for the treatment of squamous cell carcinoma of the head and neck, non-small cell lung cancer, and chronic lymphocytic leukemia through its sponsored trials, as well as in other oncology indications through collaborations. On June 1, 2017, the Company reincorporated from a Nevada corporation to a Delaware corporation.
Liquidity
The Company is currently engaged in the development of therapeutics to fight cancer, specifically solid tumors. The Company currently does not have any commercial products and has not yet generated any revenues from its business. The Company currently does not anticipate that it will generate any significant revenues from the sale or licensing of any of its product candidates during the 12 months from the date these financial statements are issued. The Company has incurred a net loss of $ 259.6 million for the year ended December 31, 2020 and used $ 205.1 million of cash in its operating activities during the year ended December 31, 2020. As of December 31, 2020, the Company had $ 635.0 million in cash, cash equivalents, short-term investments, and restricted cash ($ 67.3 million of cash and cash equivalents, $ 562.1 million in short-term investments and $ 5.5 million in restricted cash).
The Company expects to continue its research and development activities, increase pre-commercial activities and continue the construction of the tenant improvements for its new manufacturing facility, which will increase the amount of cash used during 2021 and beyond. Specifically, the Company expects continued spending on its current and planned clinical trials, continued expansion of manufacturing activities, including construction of a manufacturing facility, higher payroll expenses as the Company increases its professional and scientific staff and continuation of pre-commercial activities. Based on the funds the Company has available as of the date these financial statements are issued, the Company believes that it has sufficient capital to fund its anticipated operating expenses and capital expenditures as planned for at least the next twelve months from the date these financial statements are issued.
Impact of COVID-19
In December 2019, a novel coronavirus known as SARS-CoV-2 was first detected in Wuhan, Hubei Province, People’s Republic of China, causing outbreaks of the coronavirus disease, known as COVID-19, that has now spread globally. On January 30, 2020, the World Health Organization (“WHO”) declared COVID-19 a pandemic (the “COVID-19 Pandemic”). The Secretary of Health and Human Services declared a public health emergency on January 31, 2020, under section 319 of the Public Health Service Act (42 U.S.C. 247d), in response to the COVID-19 Pandemic. The full impact of the COVID-19 Pandemic is unknown and rapidly evolving. While the potential economic impact brought by and over the duration of the COVID-19 Pandemic may be difficult to assess or predict, the COVID-19 Pandemic has resulted in significant disruption of global financial markets, which could in the future negatively affect the Company's liquidity. In addition, a recession or market volatility resulting from the COVID-19 Pandemic could affect the Company’s business. Given the nature and type of the Company’s short-term investments in U.S. government securities, the Company does not believe the COVID-19 Pandemic has had or will have a material impact on the Company's current investment liquidity.
Concentrations of Risk
The Company is subject to credit risk from its portfolio of cash equivalents and short-term investments. Under its investment policy, the Company limits amounts invested in such securities by credit rating, maturity, industry group, investment type and issuer,
F-10
Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
except for securities issued by the U.S. government. The Company does not believe it is exposed to any significant concentrations of credit risk from these financial instruments. The goals of its investment policy, in order of priority, are as follows: safety and preservation of principal and diversification of risk and liquidity of investments sufficient to meet cash flow requirements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING PRACTICES
Cash, Cash Equivalents, and Short-term Investments
The Company’s cash and cash equivalents include short-term investments with original maturities of three months or less when purchased. The Company's short-term investments are classified as “available-for-sale.” The Company includes these investments in current assets and carries them at fair value. Unrealized gains and losses on available-for-sale securities are included in accumulated other comprehensive loss or income. Any impairment losses related to credit losses (if any) are included in an allowance for credit losses with an offsetting entry to net loss. No impairment losses related to credit losses were recognized for the years ended December 31, 2020 and 2019. The cost of debt securities is adjusted for the amortization of premiums and accretion of discounts to maturity. Such amortization and accretion are included in net interest income in the Consolidated Statements of Operations. Gains and losses on securities sold are recorded based on the specific identification method and are included in net interest income in the Consolidated Statements of Operations. The Company has not incurred any realized gains or losses from sales of securities to date. The Company’s investment policy limits investments to certain types of instruments such as certificates of deposit, money market instruments, obligations issued by the U.S. government and U.S. government agencies as well as corporate debt securities, and places restrictions on maturities and concentration by type and issuer, except for securities issued by the U.S. government. Currently the Company invests excess cash only in obligations issued by the U.S. government and U.S. government agencies.
Restricted Cash
The Company maintains a certain minimum balance, approximately $ 5.5 million in a segregated bank account in connection with a letter of credit, one for $ 5.45 million for the benefit of the landlord for its commercial manufacturing facility used as a security deposit for the lease (See Note 10 - Leases), and a second one for $ 74,685 for the benefit of a utilities service provider. The total amount is classified as Restricted Cash on the Consolidated Balance Sheet. The letter of credit originally expired on May 28, 2020, however, it automatically extends for additional one-year periods, without written agreement, to May 28 in each succeeding calendar year, through at least 60 days after the lease expiration date. Further, on the expiration of the seventh year of the lease, and each anniversary date thereafter, the letter of credit may be decreased by $ 1,000,000 , with a minimum security deposit of $ 1,450,000 maintained through the end of the lease term. The $ 74,685 letter of credit will expire on March 9, 2021, however, it will be automatically extended, without written agreement, to the expiration date of December 1, 2022. As of December 31, 2020 and 2019, restricted cash consisted of $ 5.5 million and this amount has been classified as a non-current asset on the Company’s Consolidated Balance Sheets.
The following table provides a reconciliation of cash, cash equivalents, and restricted cash, reported within the Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Consolidated Statements of Cash Flows:
December 31,
December 31,
December 31,
2020
2019
2018
Cash and cash equivalents
$
67,329
$
13,969
$
82,152
Restricted cash (included in non-current assets on the Consolidated Balance Sheets)
5,525
5,450
—
Total cash, cash equivalents and restricted cash
$
72,854
$
19,419
$
82,152
F-11
Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Property and Equipment, net
Property and equipment is stated at cost, net of accumulated depreciation and amortization. The cost of property and equipment is depreciated or amortized on the straight-line method over the following estimated useful lives. The depreciation or amortization of capitalized construction in progress costs, a component of property and equipment, net, begins once the underlying asset is placed into service and is recognized over the estimated useful lives:
Computer equipment
2 years
Office furniture and equipment
5 years
Lab equipment
5 years
Leasehold improvements
Lesser of the remaining economic life of the asset or the lease-term
Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized. Gains and losses on disposals are included within operating expenses in the Consolidated Statements of Operations.
Management assesses the carrying value of property and equipment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If there is indication of impairment, management prepares an estimate of future undiscounted cash flows expected to result from the use of the asset and its eventual disposition. If these cash flows are less than the carrying amount of the asset, an impairment loss is recognized to write down the asset to its estimated fair value. For the years ended December 31, 2020, 2019, and 2018, the Company did not recognize any impairments for its property and equipment.
Loss per Share
Basic net loss per share is computed by dividing the net loss by the weighted average number of common shares outstanding during the period.
Diluted net loss per share is computed by dividing the net loss by the sum of the weighted average number of shares of common stock outstanding and the dilutive common stock equivalent shares outstanding during the period. The Company’s potentially dilutive common stock equivalent shares, which include incremental common shares issuable upon (i) the exercise of outstanding stock options and warrants, (ii) purchases though the 2020 Employee Stock Purchase Plan (the “2020 ESPP”), (iii) vesting of restricted stock units and restricted stock awards, and (vi) conversion of preferred stock, are only included in the calculation of diluted net loss per share when their effect is dilutive.
At December 31, 2020, 2019, and 2018, the following outstanding common stock equivalents have been excluded from the calculation of net loss per share because their impact would be anti-dilutive.
As of December 31,
2020
2019
2018
Stock options
12,615,638
9,494,712
6,889,287
Series A Convertible Preferred Stock*
97,000
97,000
97,000
Series B Convertible Preferred Stock*
3,581,119
3,581,119
5,854,845
2020 ESPP
37,259
—
—
Restricted stock units
—
22,916
68,742
16,331,016
13,195,747
12,909,874
*on an as-converted basis
The dilutive effect of potentially dilutive securities would be reflected in diluted earnings per common share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company's common stock could result in a greater dilutive effect from potentially dilutive securities.
F-12
Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements
Under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurements and Disclosures, fair value is defined as the price at which an asset could be exchanged, or a liability transferred in a transaction between knowledgeable, willing parties in the principal or most advantageous market for the asset or liability. Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. Where observable prices or parameters are not available, valuation models are applied.
Assets and liabilities recorded at fair value in the Company’s financial statements are categorized based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:
Level 1—These are investments where values are based on unadjusted quoted prices for identical assets in an active market that the Company has the ability to access.
Level 2—These are investments where values are based on quoted market prices in markets that are not active or model derived valuations in which all significant inputs are observable in active markets
The Company does not have fair valued assets classified under Level 2 as of December 31, 2020 and 2019.
Level 3—These are financial instruments where values are derived from techniques in which one or more significant inputs are unobservable.
The Company does not have fair valued assets classified under Level 3 as of December 31, 2020 and 2019.
The Company’s financial instruments consist of cash and cash equivalents and short-term investments, all of which are reported at their respective fair value on its Consolidated Balance Sheets.
As of December 31, 2020 and 2019, financial assets measured at fair value on a recurring basis are categorized in the table below based upon the lowest level of significant input to the valuations (in thousands):
Assets at Fair Value as of December 31, 2020
Level 1
Level 2
Level 3
Total
U.S. treasury securities
$
470,109
$
—
$
—
$
470,109
U.S. government agency securities
91,999
—
—
91,999
Total
$
562,108
$
—
$
—
$
562,108
Assets at Fair Value as of December 31, 2019
Level 1
Level 2
Level 3
Total
US treasury securities
$
242,249
$
—
$
—
$
242,249
US government agency securities
50,863
—
—
50,863
Total
$
293,112
$
—
$
—
$
293,112
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the assumptions made in valuing stock instruments issued for services and used in measuring operating right-of-use assets and operating lease liabilities, accounting for potential liabilities, capitalization of internal-use software development costs, and the valuation allowance associated with the Company’s deferred tax assets.
F-13
Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Iovance Biotherapeutics, Inc. and its wholly-owned subsidiaries, Iovance Biotherapeutics Manufacturing LLC and Iovance Biotherapeutics GmbH. All intercompany accounts and transactions have been eliminated. The U.S. dollar is the functional currency for all the Company's consolidated operations.
Leases
The Company determines if an arrangement includes a lease at inception. Operating leases are included in its Consolidated Balance Sheet as Operating lease right-of-use assets and Operating lease liabilities as of December 31, 2020. Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses an estimated incremental borrowing rate that is applicable to the Company based on the information available at the later of the lease commencement date or the date of adoption of Accounting Standard Update (ASU) No. 2016-02 and ASU No. 2018-10, Leases (together “Topic 842”). The operating lease right-of-use assets also include any lease payments made less lease incentives. The Company’s leases may include options to extend or terminate the lease, which is considered in the lease term when it is reasonably certain that the Company will exercise any such options. Lease expense is recognized on a straight-line basis over the expected lease term. The Company has elected not to apply the recognition requirements of Topic 842 for short-term leases.
For lease agreements entered into after the adoption of Topic 842 that include lease and non-lease components, such components are generally accounted for separately.
Stock-Based Compensation
The Company periodically grants stock options to employees in non-capital raising transactions as compensation for services rendered. The Company also offers employee stock purchase plans to employees. The Company accounts for all stock-based payment awards made to employee, including the employee stock purchase plans, based on the authoritative guidance provided by the FASB where the value of the award is measured on the date of grant and recognized over the vesting period. Upon the adoption of ASU No. 2018-07, Compensation-Stock Compensation (“Topic 718”), the Company accounts for stock option grants to non-employees in a similar manner as stock option grants to employees except for the term used in the grant date fair value, therefore no longer requiring a re-measurement at the then-current fair values at each reporting date until the shares underlying the options have vested. The non-employee awards that contain a performance condition that affects the quantity or other terms of the award are measured based on the outcome that is probable.
The fair value of the Company's common stock option grants is estimated using a Black-Scholes option pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the common stock options, and future dividends. The stock-based compensation expense is recorded based upon the value derived from the Black-Scholes option pricing model. The assumptions used in the Black-Scholes option pricing model could materially affect compensation expense recorded in future periods.
The Company has in the past issued restricted stock units (“RSU”) and restricted stock awards (“RSA”) as part of its share-based compensation programs. The Company measures the compensation cost with respect to RSUs and RSAs issued to employees based upon the estimated fair value of the equity instruments at the date of the grant, which is recognized as an expense over the period during which an employee is required to provide services in exchange for the awards.
The fair value of RSUs and RSAs is based on the closing price of the Company’s common stock on the grant date.
F-14
Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cloud Computing Arrangements
The Company defers implementation costs incurred in cloud computing arrangements in accordance with ASC 2018-15 and amortizes it over the noncancelable term of the cloud computing arrangements plus any optional renewal periods (1) that are reasonably certain to be exercised by the Company or (2) for which exercises of the renewal option is controlled by the cloud service provider. Costs incurred during the application development stage that are directly attributable to developing or obtaining software for internal use are defined as implementation costs and capitalized. Costs incurred during operation and post-implementation stages are charged to expense.
Research and Development Expenses
Research and development expenses include personnel and facility-related expenses, outside contracted services including clinical trial costs, manufacturing and process development costs, research costs and other consulting services. Research and development costs are expensed as incurred. Nonrefundable advance payments for goods or services that will be used or rendered for future research and development activities are deferred and amortized over the period that the goods are delivered, or the related services are performed, subject to an assessment of recoverability.
Clinical development costs are a significant component of research and development expenses. The Company has a history of contracting with third parties that perform various clinical trial activities on its behalf in connection with the ongoing development of its product candidates. The financial terms of these contracts are subject to negotiations and may vary from contract to contract and may result in uneven payment flow. The Company accrues and expenses costs for clinical trial activities performed by third parties based upon estimates of the percentage of work completed over the life of the individual trial in accordance with agreements established with contract research organizations and clinical trial sites. The Company determines its estimates through discussions with internal clinical personnel and outside service providers as to the progress or stage of completion of trials or services and the agreed upon fee to be paid for such services.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in executive, finance, accounting, legal, investor relations, facilities, business development, marketing, commercial and human resources functions. Other significant costs include facility costs not otherwise included in research and development expenses, sublicense royalty expenses, legal fees relating to corporate matters, insurance, public company expenses relating to maintaining compliance with Nasdaq listing rules and Securities and Exchange Commission (“SEC”) requirements, investor relations costs, and fees for accounting and consulting services. General and administrative costs are expensed as incurred, and the Company accrues for services provided by third parties related to the above expenses by monitoring the status of services provided and receiving estimates from its service providers and adjusting its accruals as actual costs become known.
Income Taxes
The Company accounts for income taxes using the asset and liability method whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
ASC Topic 740-10-30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740-10-40 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. The Company will classify as income tax expense any interest and penalties. The Company has no material uncertain tax positions for any of the reporting periods presented.
F-15
Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted and signed into law, and GAAP requires recognition of the tax effects of new legislation during the reporting period that includes the enactment date. The CARES Act, among other things, includes changes to the tax provisions that benefits business entities and makes certain technical corrections to the 2017 Tax Cuts and Jobs Act. The tax relief measures for business entities include a five-year net operating loss (“NOL”) carrybacks, suspension of annual deduction limitation of 80% taxable income from net operating losses generated in a tax year beginning after December 31, 2017, changes in the deductibility of interest, acceleration of alternative minimum tax credit refunds, payroll tax relief, and technical correction to allow accelerated deductions for qualified improvement property. The CARES Act also provides other non-tax benefits to assist those impacted by the pandemic. The Company evaluated the impact of the CARES Act and determined the impact is immaterial.
Concentrations
The Company is subject to credit risk from its portfolio of cash equivalents and short-term investments. Under its investment policy, the Company limits amounts invested in such securities by credit rating, maturity, industry group, investment type and issuer, except for securities issued by the U.S. government. The Company does not believe it is exposed to any significant concentrations of credit risk from these financial instruments. The goals of its investment policy, in order of priority, are as follows: safety and preservation of principal and diversification of risk; liquidity of investments sufficient to meet cash flow requirements. The Company maintains cash, cash equivalents and short-term investment balances at three financial institutions. Management believes that the financial institutions which hold its cash are financially sound and, accordingly, minimal credit risk exists. As of December 31, 2020, and 2019, respectively, the Company’s cash balances were in excess of insured limits maintained at the financial institutions.
Recent Accounting Standards
Financial Instruments
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, and also issued subsequent amendments to the initial guidance, ASU 2018-19, ASU 2019-04, ASU 2019-05, ASU 2019-11, and ASU 2020-03 (collectively, Topic 326), to introduce a new impairment model for recognizing credit losses on financial instruments based on an estimate of current expected credit losses (“CECL”). Under Topic 326, an entity is required to estimate CECL on available-for-sale (“AFS”) debt securities only when the fair value is below the amortized cost of the asset and is no longer based on an impairment being “other-than-temporary”. Topic 326 also requires the impairment calculation on an individual security level and requires an entity use present value of cash flows when estimating the CECL. The credit-related losses are required to be recognized through earnings and non-credit related losses are reported in other comprehensive income. In April 2019, the FASB further clarified the scope of Topic 326 and addressed issues related to accrued interest receivable balances, recoveries, variable interest rates and prepayment. Topic 326 will be effective for public entities in fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The new guidance requires modified retrospective application to all outstanding instruments, with a cumulative effect adjustment recorded to opening retained earnings as of the beginning of the first period in which the guidance becomes effective. The Company adopted this guidance on January 1, 2020, however, the adoption of this new guidance did not have any material impact on its consolidated financial statements.
Cloud Computing Arrangements
In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40) Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15). The guidance requires a customer in a cloud computing arrangement that is a service contract to follow the internal use software guidance to determine which implementation costs to defer and recognize as an asset. It therefore requires a customer to defer potentially significant implementation costs incurred in a cloud computing arrangement that were often expensed as incurred under the legacy GAAP and recognize them as expense over the term of the hosting arrangement. ASU 2018-15 is effective for fiscal years beginning subsequent to December 15, 2019. The Company adopted this guidance on January 1, 2020. The Company recorded $ 1.4 million as prepaid expenses and long-term assets on the Consolidated Balance Sheet as of December 31, 2020. The Company recorded $ 0.2 million of amortization expense for the year ended December 31, 2020.
F-16
Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Segment reporting
The Company operates in one segment, focused on developing and commercializing therapies using autologous TIL for the treatment of metastatic melanoma and other solid tumor cancers.
Subsequent Events
Management of the Company evaluates events that have occurred after the balance sheet date through the date the financial statements are issued. See Note 14 - Subsequent Events.
NOTE 3. CASH AND CASH EQUIVALENTS, AND SHORT-TERM INVESTMENTS
Cash equivalents, and short-term investments consist of the following (in thousands):
December 31,
December 31,
2020
2019
Cash equivalents - Money market funds
$
49,720
$
10,049
Cash equivalents total
$
49,720
$
10,049
Cash equivalents in the tables above exclude cash demand deposits of $ 17.6 million and $ 3.9 million as of December 31, 2020 and 2019, respectively (in thousands).
December 31,
December 31,
Short-term investments
2020
2019
U.S. treasury securities
$
470,109
$
242,249
U.S. government agency securities
91,999
50,863
Short-term investments total
$
562,108
$
293,112
The cost and fair value of cash equivalents and short-term investments at December 31, 2020 and 2019 were as follows (in thousands):
Gross
Gross
Accretion
Unrealized
Unrealized
As of December 31, 2020
Cost
(Amortization)
Gains
Losses
Fair Value
U.S. treasury securities
$
471,702
$
( 1,594 )
$
30
$
( 29 )
$
470,109
U.S. government agency securities
92,248
( 267 )
20
( 2 )
91,999
Total
$
563,950
$
( 1,861 )
$
50
$
( 31 )
$
562,108
Gross
Gross
Unrealized
Unrealized
As of December 31, 2019
Cost
Accretion
Gains
Losses
Fair Value
U.S. treasury securities
$
241,709
$
364
$
179
$
( 3 )
$
242,249
U.S. government agency securities
50,712
107
44
—
50,863
Total
$
292,421
$
471
$
223
$
( 3 )
$
293,112
Unrealized gains and losses are included in accumulated other comprehensive loss. All short-term investments held by the Company as of December 31, 2020 and 2019 have a maturity of less than one year.
F-17
Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4. PROPERTY AND EQUIPMENT
Property and equipment, net consists of the following (in thousands):
December 31,
December 31,
2020
2019
Lab equipment
$
4,656
$
4,530
Leasehold improvements
2,573
2,372
Computer equipment
270
258
Office furniture and equipment
480
457
Construction in progress
56,758
5,417
Total Property and equipment, cost
64,737
13,034
Less: Accumulated depreciation and amortization
( 5,578 )
( 4,498 )
property and equipment, net
$
59,159
$
8,536
Depreciation expense for the years ended December 31, 2020, 2019, and 2018 was approximately $ 1.1 million, $ 1.2 million and $ 1.0 million, respectively.
NOTE 5. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
December 31,
December 31,
2020
2019
Clinical related
$
15,661
$
4,692
Accrued payroll and employee related expenses
9,032
6,866
Commercial manufacturing facility related
4,342
—
Manufacturing related
3,266
2,184
Legal and related services
1,061
866
Accrued other
1,712
1,657
$
35,074
$
16,265
NOTE 6. STOCKHOLDERS’ EQUITY
Authorized Shares of Common Stock
On June 10, 2019, the certificate of incorporation of the Company was amended to increase the number of authorized shares of the Company's common stock, par value $ 0.000041666 , from 150,000,000 shares to 300,000,000 shares (the "Certificate of Amendment"). The Certificate of Amendment was approved by the Company's stockholders at the Company's 2019 Annual Meeting of Stockholders held on June 10, 2019.
Public Offerings
In June 2020, the Company closed an underwritten public offering of 16,935,484 shares of the Company’s common stock at a public offering price of $ 31.00 per share, before underwriting discounts, which included 2,540,322 shares issued upon the exercise in full by the underwriter of its option to purchase additional shares at the public offering price less the underwriting discount (the "June 2020 Public Offering"). The gross proceeds from the offering, before deducting the underwriting discounts and commissions and other offering expenses payable by the Company, were $ 603.7 million, with net proceeds to the Company of $ 567.0 million.
In October 2018, the Company completed an underwritten public offering of 25,300,000 shares of the Company’s common stock at a public offering price of $ 9.97 per share, before underwriting discounts, which included 3,300,000 shares issued upon the exercise in full by the underwriter of its option to purchase additional shares at the public offering price less the underwriting discount.
F-18
Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The gross proceeds from the offering, before deducting the underwriting discounts and commissions and other estimated offering expenses payable by the Company, were $ 252.2 million, with net proceeds to the Company of $ 236.7 million.
In January 2018, the Company closed an underwritten public offering of 15,000,000 shares of the Company’s common stock at a public offering price of $ 11.50 per share, before underwriting discounts, which included 1,956,521 shares issued upon the exercise in full by the underwriter of its option to purchase additional shares at the public offering price less the underwriting discount. The gross proceeds from the offering, before deducting the underwriting discounts and commissions and other offering expenses payable by the Company, were $ 172.5 million, with net proceeds to the Company of $ 162.0 million.
Preferred Stock
The Company’s certificate of incorporation authorizes the issuance of up to 50,000,000 shares of “blank check” preferred stock. At December 31, 2020, 17,000 shares were designated as Series A Convertible Preferred Stock and 11,500,000 shares were designated as Series B Convertible Preferred Stock (“Series B Convertible Preferred Stock”).
Series A Convertible Preferred Stock
A total of 17,000 shares of Series A Convertible Preferred Stock have been authorized for issuance under the Company’s Certificate of Designation of Preferences and Rights of Series A Convertible Preferred Stock. The shares of Series A Convertible Preferred Stock have a stated value of $ 1,000 per share and are initially convertible into shares of common stock at a price of $ 2.00 per share, subject to adjustment. Each share of Series A Preferred Stock is initially convertible into 500 shares of common stock.
The Series A Convertible Preferred Stock may, at the option of each investor, be converted into fully paid and non-assessable shares of common stock. The holders of shares of Series A Convertible Preferred Stock do not have the right to vote on matters that come before the Company’s stockholders. In the event of any dissolution or winding up of the Company, proceeds shall be paid pari passu among the holders of common stock and preferred stock, pro rata based on the number of shares held by each holder. The Company may not declare, pay or set aside any dividends on shares of capital stock of the Company (other than dividends on shares of common stock payable in shares of common stock) unless the holders of the Series A Convertible Preferred Stock shall first receive an equal dividend on each outstanding share of Series A Convertible Preferred Stock.
No Shares of Series A Convertible Preferred Stock were converted during the year ended December 31, 2020 and 2019. At December 31, 2020 and 2019, 194 shares of Series A Convertible Preferred Stock (that are convertible into 97,000 shares of common stock) remained outstanding.
Series B Convertible Preferred Stock
A total of 11,500,000 shares of Series B Convertible Preferred Stock are authorized for issuance under the Company’s Series B Certificate of Designation of Rights, Preferences and Privileges of Series B Convertible Preferred Stock. The shares of Series B Convertible Preferred Stock have a stated value of $ 4.75 per share and are convertible into shares of the Company’s common stock at an initial conversion price of $ 4.75 per share. Each share of Series B Preferred Stock is initially convertible into 1 share of common stock.
The Series B Convertible Preferred Stock may, at the option of each investor, be converted into fully paid and non-assessable shares of common stock. The holders of Series B Convertible Preferred Stock do not have the right to vote on matters that come before the Company's stockholders. In the event of any dissolution or winding up of the Company, proceeds shall be paid pari passu among the holders of common stock and preferred stock, pro rata based on the number of shares held by each holder. Holders of Series B Convertible Preferred Stock are entitled to dividends on an as-if-converted basis in the same form as any dividends actually paid on shares of the Series A Convertible Preferred Stock or the Company’s common stock. So long as any Series B Convertible Preferred Stock remains outstanding, the Company may not redeem, purchase or otherwise acquire any material amount of the Series A Convertible Preferred Stock or any securities junior to the Series B Convertible Preferred Stock.
No Shares of Series B Convertible Preferred Stock were converted during the year ended December 31, 2020. A total of 2,273,726 shares of Series B Convertible Preferred Stock were converted into 2,273,726 shares of common stock during the year ended December 31, 2019. At December 31, 2020 and 2019, 3,581,119 shares of Series B Preferred Stock (that are convertible into 3,581,119 shares of common stock) remained outstanding, respectively.
F-19
Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Cancellation of Common Shares
On September 30, 2013, the Company and a third party entered into an agreement under which the Company issued 50,000 shares of unregistered stock in the Company to the third party. On January 16, 2019, the two parties entered into a confidential settlement agreement in connection with a dispute related to their prior relationship and activities. As part of the settlement, the third party returned 32,500 shares of common stock to the Company for cancellation and retained the remaining 17,500 shares. The Company included a gain of $ 335,000 on cancellation of 32,500 shares in Other income in its Consolidated Statement of Operations.
Warrants
There were no remaining outstanding warrants as of December 31, 2020 and 2019.
Restricted Stock Units
On June 1, 2016, the Company entered into an RSU agreement with the Company’s Chief Executive Officer, Maria Fardis, Ph.D., pursuant to which the Company granted Dr. Fardis 550,000 non-transferrable RSU at fair market value of $ 5.87 per share as an inducement of employment pursuant to the exception to The Nasdaq Global Market rules that generally require stockholder approval of equity incentive plans. The 550,000 RSU vest in installments as follows: (i) 137,500 RSU vested upon the first anniversary of the effective date of Dr. Fardis’ employment agreement; (ii) 275,000 RSU vest upon the satisfaction of certain clinical trial milestones; and (iii) 137,500 RSU vest in equal monthly installments over the 36-month period following the first anniversary of the effective date of Dr. Fardis’ employment, such that the RSUs were fully vested as of June 1, 2020. At December 31, 2020, the Company had no RSUs outstanding.
Stock-based compensation expense for restricted stock units are measured based on the closing fair market value of the Company's common stock on the date of grant. The stock-based compensation expenses relating to restricted stock units were $ 0.1 million, $ 0.3 million, and $ 0.3 million for the years ended December 31, 2020, 2019, and 2018, respectively, recorded as part of general and administrative expenses.
Equity Incentive Plans
On October 14, 2011, the Company’s Board of Directors (the “Board”) adopted the 2011 Equity Incentive Plan (the “2011 Plan”). Employees, directors, consultants and advisors of the Company are eligible to participate in the 2011 Plan. The 2011 Plan initially had 180,000 shares of common stock reserved for issuance in the form of incentive stock options, non-qualified options, common stock, and grant appreciation rights. The 2011 Plan was not approved by the Company’s stockholders within the required one-year period following its adoption and, accordingly, no incentive stock options can be granted under that plan. In August 2013, the Board and a majority of the Company’s stockholders approved an amendment to increase the number of shares available under the 2011 Plan from 180,000 shares to 1,700,000 shares, and an amendment to increase the number options or other awards that can be granted to any one person during a twelve (12) month period from 50,000 shares to 300,000 shares. The foregoing amendment to the 2011 Plan became effective in September 2013. On August 20, 2014, the Board amended the 2011 Plan to increase the number of shares available for issuance upon the exercise of stock options under the 2011 Plan from 1,700,000 to 1,900,000 shares, effective immediately. At December 31, 2020, 11,240 shares were available for future grant under the 2011 Plan.
On September 19, 2014, the Board adopted the Iovance Biotherapeutics, Inc. 2014 Equity Incentive Plan (the “2014 Plan”). The 2014 Plan was approved by the Company’s stockholders at the Company’s 2014 Annual Meeting of Stockholders held in November 2014. The 2014 Plan, as approved by the stockholders, authorized the issuance up to an aggregate of 2,350,000 shares of the Company’s common stock. On April 10, 2015, the Board amended the 2014 Plan to increase the total number of shares that can be issued under the 2014 Plan to 4,000,000 shares of the Company’s common stock. The increase in shares available for issuance under the 2014 Plan was approved by the Company’s stockholders at the Company’s 2015 Annual Meeting of Stockholders in June 2015.
On August 16, 2016, the Company’s stockholders approved an increase in the total number of shares that can be issued under the 2014 Plan to 9,000,000 shares of the Company’s common stock. At December 31, 2020, 61,575 shares were available for grant under the Company’s 2014 Plan.
On April 22, 2018, the Board adopted the Iovance Biotherapeutics, Inc. 2018 Equity Incentive Plan (the “2018 Plan”). The 2018 Plan was approved by the Company’s stockholders at the annual meeting of stockholders held in June 2018. The 2018 Plan as
F-20
Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
approved by the stockholders authorized the issuance up to an aggregate of 6,000,000 shares of common stock reserved for issuance in the form of incentive (qualified) stock options, non-qualified options, common stock, stock appreciation rights, restricted stock awards, restricted stock units, other stock-based awards, other cash-based awards or any combination of the foregoing. On June 8, 2020, the Company's stockholders approved an amendment to the 2018 Plan to increase the number of shares available for issuance upon the exercise of stock options under the 2018 Plan from 6,000,000 to 14,000,000 shares, which became effective immediately. At December 31, 2020, 7,455,537 shares of common stock were available for grant under the Company’s 2018 Plan.
Stock Options
A summary of the status of stock options at December 31, 2020, and the changes during the three years then ended, is presented in the following table:
Weighted
Weighted
Average
Aggregate
Number
Average
Remaining
Intrinsic
of
Exercise
Contract
Value
Options
Price
Life
(in thousands)
Outstanding at January 1, 2018
6,072,368
$
7.42
Issued
2,960,620
14.73
Exercised
( 1,336,514 )
7.45
Expired/Cancelled
( 807,187 )
10.04
Outstanding at December 31, 2018
6,889,287
$
10.25
Issued
4,166,600
14.73
Exercised
( 727,492 )
8.85
Expired/Cancelled
( 833,683 )
13.87
Outstanding at December 31, 2019
9,494,712
$
12.00
Issued
4,981,001
28.17
Exercised
( 973,854 )
9.92
Expired/Cancelled
( 886,221 )
18.67
Outstanding at December 31, 2020
12,615,638
$
18.08
7.81
$
358,726
Options exercisable at December 31, 2020
6,401,443
$
11.70
6.67
$
222,631
A summary of outstanding and exercisable stock options as of December 31, 2020 is as follows:
Options Outstanding
Options Exercisable
Weighted
Weighted
Average
Weighted
Average
Weighted
Remaining
Average
Remaining
Average
Range of Exercise
Number of
Contractual
Exercise Price
Number of
Contractual
Exercise Price
Prices
Shares
Life
Per Share
Shares
Life
Per Share
$ 5.05 -$ 7.3
1,307,133
5.26
$
5.98
1,307,133
5.26
$
5.98
$ 7.4 -$ 8.17
1,309,536
5.70
7.67
1,300,911
5.68
7.67
$ 8.3 -$ 11.05
1,072,016
6.92
9.60
808,228
6.55
9.54
$ 11.15 -$ 11.26
1,377,597
7.93
11.26
812,887
7.76
11.26
$ 11.44 -$ 16.8
1,481,860
7.33
15.57
1,282,900
7.30
15.71
$ 16.94 -$ 22.9
1,291,100
8.54
19.73
674,672
8.33
19.59
$ 23 -$ 23.87
256,300
9.08
23.59
12,375
8.90
23.17
$ 23.88 -$ 23.88
1,369,946
9.05
23.88
—
—
—
$ 23.93 -$ 25.78
1,406,500
8.97
25.32
76,787
8.56
25.65
$ 27.5 -$ 117
1,743,650
9.54
35.25
125,550
8.77
36.54
12,615,638
7.81
$
18.08
6,401,443
6.67
$
11.70
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Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Employee Stock Purchase Plan
In June 2020, the Company adopted the 2020 ESPP upon its approval by the Company’s shareholders at its Annual Stockholders Meeting on June 8, 2020. The Company reserved 500,000 shares of its common stock for issuance under the 2020 ESPP.
Under the 2020 ESPP, employees of the Company can purchase shares of our common stock based on a percentage of their compensation subject to certain limits. The purchase price per share is equal to the lower of 85 % of the fair market value of its common stock on the offering date or the purchase date with a six month look-back feature. The 2020 ESPP purchases are settled with common stock from the 2020 ESPP’s previously authorized and available pool of shares.
The compensation expense related to the 2020 ESPP for the year ended December 31, 2020 was $ 0.06 million. As of December 31, 2020, no shares were issued under the 2020 ESPP and there was $ 0.5 million of unrecognized compensation cost associated with the 2020 ESPP, which will be recognized over 6 months .
Stock-Based Compensation
Total stock-based compensation expense related to all of the Company’s stock-based awards was recorded on the Consolidated Statements of Operations as follows (in thousands):
Years Ended December 31,
2020
2019
2018
Research and development
$
19,727
$
11,396
$
9,305
General and administrative
21,160
12,881
10,722
Total stock-based compensation expenses
$
40,887
$
24,277
$
20,027
Total stock-based compensation broken down based on each individual instrument was as follows (in thousands):
Years Ended December 31,
2020
2019
2018
Stock option expenses
$
40,714
$
23,964
$
19,758
Restricted stock unit expenses
112
313
269
2020 ESPP expenses
61
—
—
Total stock-based compensation expenses
$
40,887
$
24,277
$
20,027
As of December 31, 2020, there was $ 75.9 million of total unrecognized compensation expenses related to non-vested employee options to be recognized over a weighted average period of 1.90 years.
The weighted average grant date fair value for employee options granted under the Company's stock option plans during the years ended December 31, 2020, 2019, and 2018 was $ 17.32 , $ 9.48 , and $ 14.44 per option respectively.
The aggregate intrinsic value in the table above reflects the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the year ended December 31, 2020 and the exercise price of the options, multiplied by the number of in-the-money stock options) that would have been received by the option holders had all option holders exercised their options on December 31, 2020. The intrinsic value of the Company’s stock options changes based on the closing price of the Company’s common stock.
The total pre-tax intrinsic value of stock options exercised during the year ended December 31, 2020, 2019, and 2018 were $ 21.4 million, $ 5.3 million, and $ 2.3 million, respectively.
F-22
Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the assumptions relating to options granted pursuant to the Company’s equity incentive plans for the years ended December 31, 2020, 2019, and 2018:
Stock Option
ESPP
Years Ended December 31,
Assumptions:
2020
2019
2018
2020
Expected term (years)
5.18 - 6.19
6.14 - 6.06
6.50 - 5.13
0.50
Expected volatility
69.99 % - 70.99 %
71.62 % - 70.63 %
200.28 % - 167.54 %
54.90 %
Risk-free interest rate
0.28 % - 1.83 %
2.59 % - 1.62 %
2.97 % - 2.27 %
0.09 %
Expected dividend yield
0 %
0 %
0 %
0 %
Expected Dividend Yield —The Company has never paid dividends and does not expect to pay dividends in the foreseeable future.
Risk-Free Interest Rate —The risk-free interest rate was based on the market yield currently available on United States Treasury securities with maturities approximately equal to the option’s expected term.
Expected Term —The expected term of the stock option grants was calculated based on historical exercises, cancellations, and forfeitures of stock options and outstanding option shares
Expected Volatility —The expected volatility is based on the historical volatility for the Company's stock over a period equal to the expected terms of the options.
Forfeiture Rate —The Company recognizes forfeitures as they occur.
Each of the inputs discussed above is subjective and generally requires significant management judgment.
NOTE 7. EMPLOYEE BENEFIT PLAN
The Company maintains a defined contribution plan covering substantially all U.S. employees under Section 401(k) of the Internal Revenue Code of 1986, as amended (the “IRC”). The Company's matching contribution to the plan was $ 1.2 million, $ 0.9 million, and $ 0.5 million for the years ended December 31, 2020, 2019, and 2018, respectively.
NOTE 8. INCOME TAXES
Net deferred tax assets (liabilities) are summarized as follows (in thousands):
As of December 31,
2020
2019
Deferred income tax asset:
Net operating loss carry forward
$
144,087
$
95,473
Stock-based compensation
11,364
8,851
Tax credit carry forwards
32,508
22,711
Lease liabilities
11,051
2,529
Depreciation and amortization
250
98
Reserves and accruals
1,866
1,410
Deferred tax assets before valuation allowance
201,126
131,072
Less: valuation allowance
( 189,412 )
( 128,720 )
Net deferred income tax assets
11,714
2,352
Deferred tax liabilities:
Depreciation and amortization
( 11,714 )
( 2,352 )
Net deferred tax assets (liabilities)
$
—
$
—
F-23
Table of Contents
IOVANCE BIOTHERAPEUTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Reconciliation of the effective income tax rate to the U.S. statutory rate is as follows:
Years ended December 31,
2020
2019
2018
Federal statutory tax rate
( 21 )
%
( 21 )
%
( 21 )
%
Orphan Drug & Research credits
( 3 )
( 4 )
( 3 )
Permanent and other differences
1
1
1
Tax rate change
—
—
—
State tax, net of federal benefit
—
( 2 )
( 1 )
( 23 )
%
( 26 )
%
( 24 )
%
Valuation allowance
23
%
26
%
24
%
Effective tax rate
—
%
—
%
—
%
The components of income tax expense (benefit) are as follows (in thousands):
Years Ended December 31,
2020
2019
2018
Federal:
Current
$
—
$
—
$
—
Deferred
( 59,931 )
( 47,010 )
( 28,277 )
State and Local
Current
—
—
—
Deferred
( 760 )
( 3,564 )
( 2,020 )
Change in Valuation Allowance
60,691
50,574
30,297
Total income tax expense (benefit)
$
—
$
—
$
—
The Company had net operating loss carryovers (“NOLs”) for federal and state income tax purposes of approximately $ 662.4 million and $ 128.9 million, respectively, as of December 31, 2020. $ 142.4 million of federal NOLs will expire beginning in 2027, while $ 520.0 million generated after Tax Reform will have an indefinite life. The state NOLs will expire if unused in years 2030 through 2038.
The Company’s utilization of NOLs is subject to an annual limitation due to ownership changes that have occurred previously or that could occur in the future as provided in Section 382 of the Code (“Section 382”), as well as similar state provisions. Section 382 limits the utilization of NOLs when there is a greater than 50% change of ownership as determined under the regulations. Since its formation, the Company has raised capital through the issuance of capital stock and various convertible instruments which, combined with the purchasing shareholders’ subsequent disposition of these shares, has resulted in an ownership change as defined by Section 382, and could result in an ownership change in the future upon subsequent disposition. The Company’s utilization of NOLs may also be adversely affected by future changes in federal and state tax laws and regulations.
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon future generation for taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance. For the years ended December 31, 2020, 2019, and 2018, the change in the valuation allowance was approximately $ 60.7 million, $ 50.6 million, and $ 30.3 million respectively.
The Company evaluated the provisions of ASC 740 related to the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements. ASC 740 prescribes a comprehensive model for how a company should recognize, present, and disclose uncertain positions that the Company has taken or expects to take in its tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. Differences between tax positions taken or expected to be taken in a tax return and the net benefit recognized and measured pursuant to the interpretation are referred to as “unrecognized benefits.” A liability is recognized (or amount of net operating loss carry forward or amount of tax refundable is
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reduced) for unrecognized tax benefit because it represents an enterprise’s potential future obligation to the taxing authority for a tax position that was not recognized as a result of applying the provisions of ASC 740.
If applicable, interest costs related to the unrecognized tax benefits are required to be calculated and would be classified as income tax expenses in the Consolidated Statement of Operations. Penalties would be recognized as a component of “General and Administrative Expenses” in the Consolidated Statement of Operations.
A reconciliation of the beginning and ending balances of the unrecognized tax benefits during the years ended December 31, 2020, 2019, and 2018 is as follows (in thousands):
Years Ended December 31,
2020
2019
2018
Unrecognized benefit - beginning of period
$
10,038
$
6,344
$
4,111
Gross decreases - prior period tax positions
—
—
118
Gross increase current period tax positions
4,394
3,694
2,115
Unrecognized benefit - end of period
$
14,432
$
10,038
$
6,344
No interest or penalties on unpaid tax were recorded during the years ended December 31, 2020, 2019, and 2018, respectively. The Company does not anticipate any significant changes within 12 months of this reporting date of its uncertain tax positions.
The Company files tax returns in the U.S. federal and state jurisdictions. The U.S. federal and U.S. state taxing authorities may choose to audit tax returns for tax years beyond the statute of limitation period due to significant tax attribute carryforwards from prior years, making adjustments only to carryforward attributes. The Company is not currently under examination by income tax authorities in federal, state or other foreign jurisdictions.
NOTE 9. LICENSES AND AGREEMENTS
National Institutes of Health (NIH) and the National Cancer Institute (NCI)
Cooperative Research and Development Agreement (CRADA)
In August 2011, the Company signed a five-year CRADA with the NCI to work with Dr. Steven Rosenberg on developing adoptive cell immunotherapies that are designed to destroy metastatic melanoma cells using a patient’s tumor infiltrating lymphocytes.
In January 2015, the Company executed an amendment to the CRADA to include four new indications. As amended, in addition to metastatic melanoma, the CRADA included the development of TIL therapy for the treatment of patients with bladder, lung, triple-negative breast, and Human Papilloma Virus (“HPV”)-associated cancers.
In August 2016, the NCI and the Company entered a second amendment to the CRADA. The principal changes effected by the second amendment included (i) extending the term of the CRADA by another five years to August 2021, and (ii) modifying the focus on the development of unmodified TIL as a stand-alone therapy or in combination with U.S. Food and Drug Administration (“FDA”) - licensed products and commercially available reagents routinely used for adoptive cell therapy. The parties will continue the development of improved methods for the generation and selection of TIL with anti-tumor reactivity in metastatic melanoma, bladder, lung, breast, and HPV-associated cancers.
Pursuant to the terms of the CRADA, as amended, the Company is required to make quarterly payments of $ 0.5 million to the NCI for support of research activities. To the extent the Company licenses patent rights relating to a TIL-based product candidate, the Company will be responsible for all patent-related expenses and fees, past and future, relating to the TIL-based product candidate. In addition, the Company may be required to supply certain test articles, including TIL, grown and processed under cGMP conditions, suitable for use in clinical trials, where the Company holds the investigational new drug application for such clinical trial. The extended CRADA has a five-year term expiring in August 2021. The Company or the NCI may unilaterally terminate the CRADA for any reason or for no reason at any time by providing written notice at least 60 days before the desired termination date. The Company recorded costs associated with the CRADA of $ 2.0 million, $ 2.2 million, and $ 2.0 million for the years ended December 31, 2020, 2019 and 2018, respectively, as research and development expenses.
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Patent License Agreement Related to the Development and Manufacture of TIL
Effective October 5, 2011, the Company entered into an Exclusive Patent License Agreement (the “Patent License Agreement”) with the NIH, an agency of the U.S. Public Health Service within the Department of Health and Human Services (NIH), which was subsequently amended on February 9, 2015 and October 2, 2015. Pursuant to the Patent License Agreement, as amended, the NIH granted the Company licenses, including exclusive, co-exclusive, and non-exclusive licenses, to certain technologies relating to autologous tumor infiltrating lymphocyte adoptive cell therapy products for the treatment of metastatic melanoma, lung, breast, bladder and HPV-positive cancers. The Patent License Agreement requires the Company to pay royalties based on a percentage of net sales (which percentage is in the mid-single digits), a percentage of revenues from sublicensing arrangements, and lump sum benchmark royalty payments on the achievement of certain clinical and regulatory milestones for each of the various indications and other direct costs incurred by the NIH pursuant to the agreement. The Company anticipates making a milestone payment in conjunction with the submission of a Biologics License Application for any of its product candidates covered by the Patent License Agreement.
Exclusive Patent License Agreement Related to TIL Selection
On February 10, 2015, the Company entered into an exclusive patent license agreement (the “Exclusive Patent License Agreement”) with the NIH under which the Company received an exclusive license to the NIH’s rights to patent-pending technologies related to methods for improving adoptive cell therapy through more potent and efficient production of TIL from melanoma tumors by selecting for T cell populations that express various inhibitory receptors. Unless terminated sooner, the license shall remain in effect until the last licensed patent right expires. Under the Exclusive Patent License Agreement, the Company agreed to pay customary royalties based on a percentage of net sales of a licensed product (which percentage is in the mid-single digits), a percentage of revenues from sublicensing arrangements, and lump sum benchmark payments upon the successful completion of clinical studies involving licensed technologies, the receipt of the first FDA approval or foreign equivalent for a licensed product or process resulting from the licensed technologies, the first commercial sale of a licensed product or process in the U.S., and the first commercial sale of a licensed product or process in any foreign country.
H. Lee Moffitt Cancer Center
Research Collaboration and Clinical Grant Agreements with Moffitt
In December 2016, the Company entered into a new three-year Sponsored Research Agreement with H. Lee Moffitt Cancer Center (“Moffitt”) which expired in December 2019. In June 2020, the Company entered into a new Sponsored Research Agreement with Moffitt, with a term that ends either upon completion of the research thereunder or on July 1, 2022, whichever is sooner, and under which immaterial payments will be made to Moffitt in connection with the research services thereunder. At the same time, the Company entered into a clinical grant agreement with Moffitt to support an ongoing clinical trial at Moffitt that combines TIL therapy with nivolumab for the treatment of patients with metastatic melanoma. In June 2017, the Company entered into a second clinical grant agreement with Moffitt to support a new clinical trial at Moffitt that combines TIL therapy with nivolumab for the treatment of patients with non-small cell lung cancer, under which the Company obtained a non-exclusive, royalty-free license to any new Moffitt inventions made in the performance of the agreement. Under both clinical grant agreements with Moffit, the Company has non-exclusive rights to clinical data arising from the respective clinical trials. In the years ended December 31, 2020, 2019 and 2018, the Company recorded research and development costs of $ 0.6 million, $ 0.7 million, and $ 1.2 million, respectively, in connection with the research collaboration and clinical grant agreements with Moffitt.
Exclusive License Agreements with Moffitt
The Company entered into a license agreement with Moffitt (the “First Moffitt License”), effective as of June 28, 2014, under which the Company received a world-wide license to Moffitt’s rights to patent-pending technologies related to methods for improving TIL for adoptive cell therapy using toll-like receptor agonists. Unless earlier terminated, the term of the license extends until the earlier of the expiration of the last issued patent related to the licensed technology or 20 years after the effective date of the license agreement.
Pursuant to the First Moffitt License, the Company paid an upfront licensing fee in the amount of $ 0.1 million. A patent issuance fee will also be payable under the First Moffitt License, upon the issuance of the first U.S. patent covering the subject technology. In addition, the Company agreed to pay milestone license fees upon completion of specified milestones, customary
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royalties based on a specified percentage of net sales (which percentage is in the low single digits) and sublicensing payments, as applicable, and annual minimum royalties beginning with the first sale of products based on the licensed technologies, which minimum royalties will be credited against the percentage royalty payments otherwise payable in that year. The Company will also be responsible for all costs associated with the preparation, filing, maintenance and prosecution of the patent applications and patents covered by the First Moffitt License related to the treatment of any cancers in the U.S., Europe and Japan and in other countries designated by the Company in agreement with Moffitt. No expenses were recorded for the First Moffitt License for the year ended December 31, 2020, 2019, and 2018.
The Company entered into a license agreement with Moffitt effective as of May 7, 2018 (the “Second Moffitt License”), under which the Company received a license to Moffitt’s rights to patent-pending technologies related to the use of 4-1BB agonists in conjunction with TIL manufacturing processes and therapies. Pursuant to the Second Moffitt License, the Company paid an upfront licensing fee in the amount of $ 0.1 million in 2018. An annual license maintenance fee is also payable commencing on the first anniversary of the effective date. In addition, the Company agreed to pay an annual commercial use payment for each indication for which a first sale has occurred, which in the aggregate amounts to up to $ 0.4 million a year. The Company recorded $ 0.1 million for the years ended December 31, 2020, 2019 and 2018 as research and development expenses in connection with this agreement.
M.D. Anderson Cancer Center
Strategic Alliance Agreement
On April 17, 2017, the Company entered into a Strategic Alliance Agreement (the “SAA”) with M.D. Anderson Cancer Center (“MDACC”) under which the Company and MDACC agreed to conduct clinical and preclinical research studies. The Company agreed in the SAA to provide total funding not to exceed approximately $ 14.2 million for the performance of the multi-year studies under the SAA. In return, the Company acquired all rights to inventions resulting from the studies and has been granted a non-exclusive, sub-licensable, royalty-free, and perpetual license to specified background intellectual property of MDACC reasonably necessary to exploit, including the commercialization thereof. The Company has also been granted certain rights in clinical data generated by MDACC outside of the clinical trials to be performed under the SAA. The SAA’s term shall continue in effect until the later of the fourth anniversary of the SAA or the completion or termination of the research and receipt by the Company of all deliverables due from MDACC thereunder. In May 2017, the Company made a prepayment of $ 1.4 million followed by subsequent payment of $ 2.5 million under this agreement. The Company recorded $ 1.1 million, $ 3.4 million and $ 0.8 million associated with the SAA for the year ended December 31, 2020, 2019, and 2018 as research and development expenses, respectively.
WuXi
In November 2016, the Company entered into a three-year manufacturing and services agreement (“MSA”) with WuXi AppTec, Inc. (“WuXi”) pursuant to which WuXi agreed to provide manufacturing and other services, which has since been amended and assigned to our subsidiary Iovance Biotherapeutics Manufacturing LLC. Under the agreement, the Company entered into two statements of work for two cGMP manufacturing suites to be established and operated by WuXi for the Company, both of the suites are expected to be capable of being used for the commercial manufacture of its products. The statements of work for the first suite were amended in 2019 and September 2020, and the second suite was amended in 2019. The statements of work for facility include a fixed component to reserve a dedicated suite and a trained work force, and a variable component, mainly materials and testing used during the manufacturing processes. Both statements of work provide for adjustments to the targeted production capacity levels and the corresponding fixed quarterly fees upon written notice from the Company of 30 days and 90 days for the first and second dedicated suites, respectively. The terms of the related statements of work for the first and second dedicated manufacturing suites currently extend to August 2022 and June 2021, respectively. The Company recorded costs associated with agreements with WuXi of $ 20.6 million, $ 28.4 million, and $ 15.1 million for the years ended December 31, 2020, 2019, and 2018 respectively, as research and development expenses.
Cellectis
On January 12, 2020, the Company entered into a research collaboration and exclusive worldwide license agreement whereby the Company will license gene-editing technology from Cellectis S.A. ("Cellectis"), a clinical-stage biopharmaceutical company, in order to develop TIL therapies that have been genetically edited. Financial terms of the license include development, regulatory and sales milestone payments from the Company to Cellectis, as well as royalty payments based on net sales of TALEN-modified TIL
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products. The Company recorded costs associated with the license agreement from Cellectis of $ 0.4 million the year ended December 31, 2020, respectively.
Novartis
On January 12, 2020, the Company obtained a license from Novartis Pharma AG (“Novartis”) to develop and commercialize an antibody cytokine engrafted protein, which the Company refers to as IOV-3001. Under the agreement, the Company has paid an upfront payment to Novartis and may pay future milestones related to initiation of patient dosing in various phases of clinical development for IOV-3001 and approval of the product in the U.S., EU and Japan. Novartis is also entitled to low-to-mid single digit percentage royalties from commercial sales of the product. The Company recorded costs associated with the license agreement from Novartis of $ 10.0 million as research and development expenses for the year ended December 31, 2020.
NOTE 10. LEASES
Facilities Leases
The Company has evaluated the following existing facility leases and determined that, effective upon the adoption of Topic 842, they were all operating leases. Operating lease right-of-use assets and liabilities were recognized as of January 1, 2019 based on the present value of the remaining lease payments over the lease term. As the Company's leases do not provide an implicit rate, the Company utilized a third party in determining an incremental borrowing rate based on the information available as of the adoption date of Topic 842 to obtain the present value of lease payments. The Company's lease terms may include options to extend or terminate the lease which are included in the lease term when it is reasonably certain that it will exercise any such options. Lease expense is recognized on a straight-line basis over the expected lease term. The Company elected not to apply the recognition requirements of Topic 842 for short-term leases that have a lease term of 12 months or less.
Tampa Lease
In December 2014, the Company commenced a five-year non-cancellable operating lease with the University of South Florida Research Foundation for a 5,115 square foot facility located in Tampa, Florida. The facility is part of the University of South Florida research park and is used as the Company’s research and development facilities. The Company had the option to extend the lease term of this facility for an additional five-year period on the same terms and conditions, except that the base rent for the renewal term will be increased in accordance with the applicable consumer price index.
In April 2015, the Company amended the original lease agreement to increase the rentable space to 6,043 square feet. In September 2016, the Company further increased the rentable space to 8,673 square feet. The per square foot cost and term of the lease were unchanged, and rent payments are approximately $ 20,000 per month. In December 2019, the Company entered into an agreement to extend the lease term to December 18, 2024 for approximately $ 20,500 a month.
In June 2020, the Company amended the lease agreement to further increase the rentable space to 13,139 square feet and extend the lease term to June 5, 2025 for approximately $ 34,500 a month.
San Carlos Lease
On August 4, 2016, the Company entered into an agreement to lease 8,733 square feet in San Carlos, California. The term of the lease is 54 months subsequent to the commencement date and will expire in April 2021. Monthly lease payments are approximately $ 38,000 .
On April 28, 2017, the Company entered into a sublease agreement with Teradata US, Inc., pursuant to which the Company agreed to sublease certain office space located adjacent to the Company's headquarters for approximately $ 26,000 per month. The space consists of approximately 11,449 rentable square feet in the building located in San Carlos, California. The sublease for this space expired on October 31, 2018. Monthly lease payments were approximately $ 26,000 .
On October 19, 2018, the Company entered into an agreement to lease 12,322 square feet of office space located adjacent to the Company's headquarters in San Carlos, California. This lease replaces the sublease of 11,449 square feet of office space in the same
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facility that expired on October 31, 2018. The term of the lease is 30 months subsequent to the commencement date, November 1, 2018, and will expire in April 2021. Monthly lease payments are approximately $ 59,000 , subject to an annual increase of 3 %.
On June 19, 2019, the Company entered into a first amendment (the “Amended Lease”) to its previously disclosed lease agreement with Hudson Skyway Landing, LLC (the “Lease”) for additional space at its corporate headquarters in San Carlos, California. Under the Amended Lease, the Company will lease an additional 8,110 square feet (the “Expansion Space”), for a total of approximately 20,432 square feet of space on the first floor of the building located at 999 Skyway Road, San Carlos, California, commonly known as Skyway Landing II. The term of the Amended Lease remains the same as that of the Lease and expires on April 30, 2021, unless earlier terminated in accordance with the Amended Lease. The Company's monthly base rent for the Expansion Space under the Amended Lease will be approximately $ 39,000 for the first year, and $ 40,000 for the second year.
New York Lease
The Company leased office space in New York for a monthly rental of approximately $ 18,000 a month from January 2017 through July 2017. On June 5, 2017, the Company entered into an agreement whereby the Company will lease office space from August 1, 2017 to July 31, 2018, for approximately $ 9,000 a month. On April 20, 2018, the Company entered into an agreement to extend the lease term to January 31, 2019 for approximately $ 7,000 a month. On November 2, 2018, the Company entered into an agreement to extend the lease term to July 31, 2019 for approximately $ 4,000 a month. On May 1, 2019, the Company entered into an agreement to extend the lease term to January 31, 2020 for approximately $ 4,000 a month. On October 24, 2019, the Company entered into an agreement to extend the lease term to April 30, 2020 for approximately $ 4,000 a month. On January 23, 2020, the Company entered into an agreement to extend the lease term to July 31, 2020 for approximately $ 4,000 a month. On May 24, 2020, the Company entered into an agreement to extend the lease term to October 31, 2020 for approximately $ 4,000 a month. On September 1, 2020, the Company entered into an agreement to extend the lease term to January 31, 2021, for approximately $ 4,000 a month. On January 31, 2021, the lease terminated, and we closed our New York office.
Philadelphia Office Lease
On May 2, 2019, the Company entered into an agreement to lease approximately 1,500 square feet of office space in Philadelphia, Pennsylvania until July 1, 2019 for a rate of $ 2,000 a month, and then approximately 4,500 square feet of office space for the remainder of a three-year term at an initial rate of $ 11,063 per month, subject to annual increases of 2.5 %.
On August 1, 2020, the Company entered into an agreement to lease approximately 2,965 square feet of a training facility space in Philadelphia, Pennsylvania for a twelve-month term at a rate of approximately $ 6,500 per month.
Commercial Manufacturing Facility Agreement
On May 28, 2019, the Company entered into a lease agreement with 300 Rouse Boulevard, LLC (the “Commercial Manufacturing Facility Lease”) for a build-to-suit commercial manufacturing facility, laboratories, and offices located in Philadelphia, Pennsylvania. Under the Commercial Manufacturing Facility Lease, the Company leases approximately 136,000 rentable square feet of space in a building located at 300 Rouse Boulevard, Philadelphia, Pennsylvania (the “Premises”). The construction of the commercial manufacturing facility began in July 2019 and has been substantially completed.
The Company determined the commencement date of the Commercial Manufacturing Lease to be October 7, 2020 in accordance with Topic 842 when its landlord made the Premise available for the Company’s use and the Company obtained control over the use of the Premises. The Commercial Manufacturing Facility Lease includes an option to extend the term of the lease, exercisable under certain conditions as described in the Commercial Manufacturing Facility Lease, such that the overall term, when added to the initial term, shall be 359 months , by giving the landlord prior written notice thereof at least 18 months in advance of the expiration date. In determining the lease term, the Company did not include the periods covered by the option to extend the lease as it determined that it is not reasonably certain that the Company will exercise such option. Upon the commencement date, the Company recognized operating lease liabilities and right-of-use assets of $ 41.3 million and $ 45.7 million, respectively.
The Company’s monthly base rent under the Lease will be approximately $ 320,000 , subject to an annual increase of 2 % for the first ten years, and an annual increase of the greater of 2 % or 75 % of the average ten-year consumer price index. The Company is also responsible for paying operating expenses, which are expected to be approximately $ 72,000 per month in 2021.
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Manufacturing Contracts
The Company uses contract manufacturing organizations (collectively the “CMOs” and each a “CMO”) to manufacture and supply TILs for clinical and commercial purposes. The CMO contractual obligations consist of the use of manufacturing facilities and minimum fixed commitment fees, such as personnel, general support fees, and minimum production or material fees. In addition to the minimum fixed commitment fees, the CMO contractual obligations include variable costs such as production and material costs in excess of the minimum quantity specified in each CMO agreement. During the term of each CMO agreement, the Company has access to and control of the use of a dedicated suite in each of the CMOs’ facilities for manufacturing activities. In conjunction with the adoption of Topic 842 on January 1, 2019, the Company reevaluated all of its material contracts it has, to determine whether they contain a lease under Topic 840. An arrangement is considered a lease or contains a lease if an underlying asset is explicitly or implicitly identified and use of the asset is controlled by the customer. Based on this evaluation, the Company concluded that all of its contracts with CMOs contained embedded operating leases because the suites used for its production are implicitly identified, is only used by the Company exclusively during the contractual term of the arrangements, and the CMOs have no substantive contractual rights to substitute the facilities used by the Company. Further, the Company controls the use of the facilities by obtaining all of the economic benefits from the use of the facilities and direct the use of the facilities throughout the period of use. The terms of the CMO contracts include options to terminate the lease with an advance notice of five to six months. The termination clauses and extension clauses are included in the calculation of the lease term for each of the CMOs when it is reasonably certain that it will not exercise such options.
The guidance requires the Company to first identify a lease deliverable and non-lease deliverable included in the arrangements, and then allocate the fixed contractual consideration to the lease deliverable(s) and the non-lease deliverable(s) on a relative standalone selling price basis to determine the amount of operating lease right-of-use assets and liabilities. The Company identified the use of a dedicated suite as a single lease deliverable, and related labor services as a single non-lease deliverable in each of the CMO arrangements. Judgment is required to determine the relative standalone selling price of each deliverable as the observable standalone selling prices are not readily available. Therefore, management used estimates and assumptions in determining relative standalone selling price of lease of a suite and labor service using information that includes market and other observable inputs to the extent possible.
The Company leases certain furniture and equipment that has a lease term of 12 months or less. Since the commencement date does not include an option to purchase the underlying asset, the Company elected not to apply the recognition requirements of Topic 842 for short-term leases, however, the lease costs that pertain to the short-term leases are disclosed in the components of lease costs table below.
The balance sheet classification of the Company’s right-of-use asset and lease liabilities was as follows:
December 31, 2020
December 31, 2019
Operating lease right-of-use assets
$
54,756
$
10,695
Operating lease liabilities
Current portion included in current liabilities
6,284
7,252
long-term portion included in non-current liabilities
45,375
4,248
Total Operating lease liabilities
$
51,659
$
11,500
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The following table summarizes components of lease expenses, which were included in Total expenses in the Company’s Consolidated Statement of Operations, and other information related to our operating leases as follows (in thousands except weighted-average remaining lease terms and discount rates):
For the Year
For the Year
Ended
Ended
December 31, 2020
December 31, 2019
Operating lease cost
8,728
$
9,213
Variable lease cost
5,585
5,801
Short-term lease cost
91
72
Total lease cost
14,404
$
15,086
Other information
Cash paid for amounts included in the measurement of lease liabilities included in Operating cashflows
$
8,372
$
8,622
Increase in right-of-use assets from the adoption of Topic 842
$
—
$
10,380
Right-of-use assets obtained from entering new leases
$
50,327
$
4,092
Increase in right-of-use assets from lease modifications
$
1,306
$
3,660
Weighted-average remaining lease terms (years)
16.76
1.74
Weighted-average discount rates
8.3
%
7.7
%
Variable lease cost is determined based on performance or usage in accordance with the contractual agreements, and not based on an index or rate.
As of December 31, 2020, the maturities of the Company's operating lease liabilities were as follows (in thousands):
CMO
Facility
embedded
leases
leases
Total
2021
$
3,912
$
6,288
$
10,200
2022
4,281
1,782
6,063
2023
4,286
—
4,286
2024
4,375
—
4,375
2025
4,281
—
4,281
Thereafter
74,206
—
74,206
Total lease payments
$
95,341
$
8,070
$
103,411
Less: Present value adjustment
( 51,474 )
( 278 )
( 51,752 )
Operating lease liabilities
$
43,867
$
7,792
$
51,659
Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. In determining the present value of lease payments, the Company used its incremental borrowing rate based on the information available at the date of adoption of Topic 842 or the date of lease modifications. As of December 31, 2020, the weighted average remaining lease term is 16.76 years and the weighted average discount rate used to determine the operating lease liabilities was 8.3 %.
NOTE 11. LEGAL PROCEEDINGS
Derivative Lawsuit. On December 11, 2020, a purported stockholder derivative complaint was filed by plaintiff Leo Shumacher against the Company, as nominal defendant, and its current directors, as defendants, in the Court of Chancery in the State of Delaware. The complaint alleges breach of fiduciary duty and a claim for unjust enrichment in connection with alleged excessive compensation of certain non-executive directors of the Company and seeks unspecified damages on behalf of the Company . The defendants intend to vigorously defend against the foregoing complaints. Based on the early stage of the litigation, it is not possible to estimate the amount or range of possible loss that might result from these matters.
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Solomon Capital, LLC. On April 8, 2016, a lawsuit (“the First Solomon Suit”) titled Solomon Capital, LLC, Solomon Capital 401(K) Trust, Solomon Sharbat and Shelhav Raff v. Lion Biotechnologies, Inc. was filed by Solomon Capital, LLC, Solomon Capital 401(k) Trust, Solomon Sharbat and Shelhav Raff (“Solomon Plaintiffs”) against the Company in the Supreme Court of the State of New York, County of New York (index no. 651881/2016). The Solomon Plaintiffs allege that, between June and November 2012, they provided to the Company $ 0.1 million and that they advanced and paid on behalf of the Company an additional $ 0.2 million. The complaint further alleges that the Company agreed to (i) provide them with promissory notes totaling $ 0.2 million, plus interest, (ii) issue a total of 1,110 shares to the Solomon Plaintiffs (after the 1-for-100 reverse split of the Company’s common stock effected in March 2013) (the “Equity Claim”), and (iii) allow the Solomon Plaintiffs to convert the foregoing funds into its securities in the next financing of the Company on the same terms offered to other investors, which Solomon Plaintiffs allege, should have given them the right to convert their advances and payments into shares of the Company's common stock in the restructuring that took effect in May 2013. Based on the foregoing, the Solomon Plaintiffs allege causes for breach of contract and unjust enrichment and demand judgment against the Company in an unspecified amount exceeding $ 1.5 million, plus interest. On June 3, 2016, the Company filed an answer and counterclaims in the lawsuits. The Company has asserted counterclaims for fraudulent inducement, fraudulent misrepresentation, fraudulent concealment, breach of fiduciary duty, and breach of contract, alleging principally that the counterclaim defendants misrepresented their qualifications and failed to disclose that Solomon Sharbat was the subject of an investigation by the Financial Industry Regulatory Authority (“FINRA”) that resulted in the loss of his FINRA license. In its counterclaims, the Company is seeking damages in an amount exceeding $ 0.5 million and an order rescinding any and all agreements that the plaintiffs contend entitled them to obtain shares of Company stock. On May 12, 2020, the court granted the Company’s motion for summary judgment limiting the Solomon Plaintiffs’ damages for the Equity Claim to $ 47,420 . The Solomon Plaintiffs filed a notice of appeal of this summary judgment on June 9, 2020. On July 2, 2020, the court granted the Company’s motion to dismiss the First Solomon Suit for want of prosecution. On July 31, 2020, the Solomon Plaintiffs, through new counsel, filed a motion for reconsideration of the dismissal of the First Solomon Suit for want of prosecution. On August 11, 2020, the Company filed an opposition brief against the Solomon Plaintiffs’ motion for reconsideration. On August 17, 2020, the Solomon Plaintiffs filed a reply brief in support of their motion for reconsideration. On September 2, 2020, the Solomon Plaintiffs filed a notice of appeal of the dismissal for want of prosecution. On January 4, 2021, the court granted the Solomon Plaintiffs motion for reconsideration, and reinstituted the case. On January 15, 2021, the Company filed a notice of appeal of the court’s grant of the Solomon Plaintiffs motion for reconsideration.
On September 27, 2019, the Solomon Plaintiffs filed a new lawsuit (through new legal counsel) (“the Second Solomon Suit”) titled Solomon Capital, LLC, Solomon Capital 401(K) Trust, Solomon Sharbat and Shelhav Raff v. Iovance Biotherapeutics, Inc., f/k/a/ Lion Biotechnologies Inc. f/k/a/ Genesis Biopharma Inc., and Manish Singh in the Supreme Court of the State of New York, County of New York (index no. 655668/2019). In the Second Solomon Suit, the Solomon Plaintiffs allege that they are third party beneficiaries of a “finder’s fee agreement” that prior management entered into with a third party unlicensed entity in 2012 in connection with seeking financing, that an agreement or understanding existed between the Company and the plaintiffs that the plaintiffs would be paid fees and commissions (in cash and stock) if they obtained financing for the Company, and that they directly and indirectly introduced investors to the Company who invested in the Company, or were willing to invest in the Company. Finally, the Solomon Plaintiffs allege that they were promised a license to use the Company’s technology in Israel. The plaintiffs claim that the Company breached the foregoing understandings, promises and agreements and, as a result, they are entitled to certain damages. The Solomon Plaintiffs also allege that Manish Singh, the Company’s former Chief Executive Officer, committed fraud and took shares belonging to them. On February 18, 2020, the Company filed a removal petition and removed the Second Solomon Suit to the U.S. District Court for the Southern District of New York, where the case has been assigned case no. 1:20-cv-1391. The Company has not yet responded to the complaint in the Second Solomon Suit. On May 22, 2020, the Company moved to dismiss the Second Solomon Suit for lack of personal jurisdiction. On July 17, 2020, the Solomon Plaintiffs filed an opposition brief against the Company’s motion to dismiss for lack of personal jurisdiction. On August 7, 2020, the Company filed a reply brief in support of the Company’s motion to dismiss for lack of personal jurisdiction.
The Company intends to vigorously defend these complaints and pursue its counterclaims, as applicable. At the current stage of the litigation, in both the First Solomon Suit and the Second Solomon Suit, it is not possible to estimate the amount or range of possible loss that might result from an adverse judgment or a settlement of these matters.
Litigation Involving Dr. Steven Fischkoff . On June 13, 2017, in an action titled Steven Fischkoff v. Lion Biotechnologies, Inc. and Maria Fardis , Dr. Steven Fischkoff, the Company’s former Vice President and Chief Medical Officer, filed a lawsuit against the Company in the Supreme Court of the State of New York, County of New York. Dr. Fischkoff was dismissed by the Company on March 28, 2017. Dr. Fischkoff was terminated “for cause” as that term is defined in his employment agreement. In his complaint, Dr. Fischkoff alleges breaches of his employment agreement and violation of New York Labor Law for failure to pay monies purportedly
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owed to him, and seeks to recover amounts including severance pay and retention bonus (totaling $ 300,000 ), a prorated incentive bonus, and amounts relating to unvested options to 150,000 shares of the Company's common stock, together with prejudgment interest, costs, expenses and attorneys’ fees. On July 5, 2017, the Company filed a removal petition and removed the lawsuit to the U.S. District Court for the Southern District of New York, where the case has been assigned case no. 1:17-cv-05041. On July 14, 2017, the Company filed a partial answer and counterclaims against Dr. Fischkoff, denying his allegations, and alleging breach of contract and related claims, breach of fiduciary duty, and state and federal trade secret misappropriation and related claims, and sought a temporary restraining order and preliminary injunction against Dr. Fischkoff. On July 18, 2017, the court issued a temporary restraining order against Dr. Fischkoff requiring him to return the Company's materials, prohibiting him from disclosing or using the Company’s materials, and granting expedited discovery. On June 25, 2018, pursuant to a stipulation between the parties, the court entered a permanent injunction prohibiting Dr. Fischkoff from disclosing, possessing, or using any of the Company’s proprietary materials or trade secrets. On July 5, 2018, the court entered an order dismissing two of Dr. Fischkoff’s claims against the Company and Dr. Fardis. On October 18, 2018, Dr. Fischkoff amended his complaint to assert a new claim for defamation arising from SEC filings in which the Company provided the information about this litigation. On September 23, 2020, the parties reached a confidential settlement in this matter, and on October 13, 2020, the court approved a stipulation of dismissal with prejudice filed by the parties.
Other Matters. In connection with the Company’s reincorporation from Nevada to Delaware in 2017, the Company (as a Delaware corporation) untimely filed a post-effective amendment to adopt a Form S-8 registration statement that the Company filed (as a Nevada corporation) to register the shares underlying the Company’s 2011 Equity Incentive Plan. Before the Company filed the required post-effective amendment, options to purchase 200,000 shares were exercised under the 2011 Equity Incentive Plan. The effect of the delayed post-effective amendment filing on the 200,000 option shares is uncertain, but the issuance and sale of the shares may not have been in compliance with the Form S-8 registration statement. The existence of any liability to the Company, and the amount of any such liability to the Company, as a result of the issuance of the 200,000 shares is uncertain. Accordingly, no accrual for a potential claim has been made by the Company in its consolidated financial statements.
The Company may be involved, from time to time, in legal proceedings and claims arising in the ordinary course of its business. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. The Company accrues amounts, to the extent they can be reasonably estimated, that it believes are adequate to address any liabilities related to legal proceedings and other loss contingencies that it believes will result in a probable loss. While there can be no assurances as to the ultimate outcome of any legal proceeding or other loss contingency involving the Company, management does not believe any pending matter will be resolved in a manner that would have a material adverse effect on its financial position, results of operations or cash flows.
NOTE 12. QUARTERLY UNAUDITED RESULTS
The results of operations by quarter for the years ended December 31, 2020 and 2019 are as follows:
2020
2019
(in thousands, except per share information)
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Revenue
$
—
$
—
$
—
$
—
$
—
$
—
$
—
$
—
Net loss
$
( 69,595 )
$
( 63,018 )
$
( 58,571 )
$
( 68,397 )
$
( 36,950 )
$
( 47,551 )
$
( 49,487 )
$
( 63,568 )
Net loss per share, basic and diluted
$
( 0.55 )
$
( 0.47 )
$
( 0.40 )
$
( 0.47 )
$
( 0.30 )
$
( 0.38 )
$
( 0.40 )
$
( 0.50 )
Weighted average share used in computing net loss per share, basic and diluted
126,568
133,162
146,492
146,738
123,415
123,567
124,035
126,273
NOTE 13. RELATED PARTY TRANSACTIONS
On September 14, 2017, the Company entered into a three-year consulting agreement with Iain Dukes, D. Phil, the Chairman of the Board. As compensation for his consulting services, the Company granted Dr. Dukes a stock option to purchase up to 150,000 shares of the Company’s common stock, at an exercise price of $ 7.30 per share. Under the consulting agreement, Dr. Dukes agreed to provide the Company with services regarding business development opportunities, licensing transactions and technology acquisitions by the Company, and any such strategic initiatives appropriate for the Company that Dr. Dukes may identify. The granted stock options vest in 12 quarterly installments (with 1/12th of the option shares having vested on the date of grant). The vesting of the granted stock options will accelerate, and the entire award will become fully vested upon the closing of a significant licensing transaction, a material product acquisition, a material strategic transaction, or upon a change of control transaction. The
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Company recognized $ 0.2 million, $ 0.4 million and $ 0.7 million in stock-based compensation expense related to this consulting agreement during the years ended December 31, 2020, 2019 and 2018, respectively.
NOTE 14. SUBSEQUENT EVENTS
New Headquarters Lease
On February 3, 2021, the Company entered into a lease agreement with ARE-San Francisco No. 63, LLC (the “New Headquarters Lease”) for laboratories and offices to be constructed in Suite 400 of an existing building located at 825 Industrial Road, San Carlos, California (the “Building”), commonly known as The District. Under the New Headquarters Lease, the Company will lease approximately 49,918 rentable square feet of space in the Building (the “Premises”). The New Headquarters Lease is for a term of 120 months, commencing upon the first day of the first full month (the “Rent Commencement Date”) after the earlier to occur of (i) the date that is 12 months and one day after the execution date (the “Commencement Date”), which is January 30, 2022, or (ii) the date that the Tenant Improvements are substantially completed; provided, however, that the Rent Commencement Date shall be delayed 1 day for each day after the Commencement Date that (a) to the extent that, after the Commencement Date, any governmental authority having jurisdiction, as a result of the COVID-19 outbreak in the U.S., declares or implements any order or mandate that restricts construction activities in San Mateo County, California (any such order or mandate, a “Government Mandate”), to the extent that such Government Mandate precludes the construction of tenant improvements, or (b) a landlord delay occurs. Construction of the Company’s offices is expected to extend through 2021. The New Headquarters Lease includes an option to extend the term of the lease for 60 months , exercisable under certain conditions and at a market rate as described in the New Headquarters Lease.
Commencing 210 days after the Rent Commencement Date as the result of a rent abatement, the Company’s monthly base rent under the New Headquarters Lease will be $ 279,540.80 , subject to an annual increase of 3 % . Beginning in 2022, the Company will also be responsible for paying operating expenses.
Extension of Existing Headquarters Leases
On February 3, 2021, the Company entered into two amendments (the “Suite 150 Second Amendment” and the “Suite 100 and Suite 125 First Amendment”) to its previously disclosed lease agreements with Hudson Skyway Landing, LLC, for space located on the first floor of the building located at 999 Skyway Road, San Carlos, California, commonly known as Skyway Landing II.
Under the Suite 100 and Suite 125 Second Amendment, the Company will extend its previously disclosed amended lease of approximately 20,432 rentable square feet of space, which would have expired on April 30, 2021, to December 31, 2021. The Company’s monthly base rent under the Suite 100 and Suite 125 Second Amendment will be $ 103,181.60 . The Company is also responsible for paying its portion of operating expenses and real estate taxes. The Company has an option to extend the expiration of the Suite 100 and Suite 125 Second Amendment for one month or six months , at its discretion, by providing notice as specified in the Suite 100 and Suite 125 Second Amendment.
Under the Suite 150 First Amendment, the Company will extend its previously disclosed lease of approximately 8,733 rentable square feet of space, which also would have expired on April 30, 2021, to December 31, 2021. The Company’s monthly base rent under the Suite 150 First Amendment will be $ 44,101.65 . The Company is also responsible for paying its portion of operating expenses and real estate taxes. The Company has an option to extend the expiration of the Suite 150 First Amendment for one month or six months , at its discretion, by providing notice as specified in the Suite 150 First Amendment.
Economic Stimulus Program Loan
On January 26, 2021, the Company entered into a Loan Note dated January 26, 2021 (the “Loan Note”) and accompanying Economic Stimulus Program Loan Agreement with PIDC – Local Development Corporation, a Pennsylvania nonprofit corporation (the “Lender”), pursuant to which the Lender agreed to make a loan (the “Job Creation Loan”) to the Company in a principal amount of $ 1.0 million. The Job Creation Loan will be for a term of five years starting on the date of the issuance of a final certificate of occupancy for the Company’s leased premises in Philadelphia, Pennsylvania. The Job Creation Loan is unsecured, bears no interest, and will be forgiven by the Lender in the amount of $ 2,000 per full-time or “full time equivalent” (defined as two or more part time employees whose working hours total at least 35 hours a week) employee with an average salary of at least $ 80,000 (“FT Employees”), up to a maximum amount equal to the amount of the Job Creation Loan, as calculated based on the average number of
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FT Employees employed at the Company’s premises during the period of the 5-year term beginning on the date that is six months prior to the maturity date and ending on the maturity date. If the Job Creation Loan is not forgiven in full by the maturity date, the remaining balance of the loan not forgiven will become payable on the maturity date. The Loan Note includes customary events of default. Upon the occurrence of an event of default, the Lender will have the right to exercise remedies against the Company, including the right to require immediate payment of all amounts due under the Loan Note.
Entry Into a Material Definitive Agreement
On February 8, 2021, the Company entered into an Open Market Sale Agreement (the “Sales Agreement”) with Jefferies LLC (“Jefferies”) with respect to an “at the market” offering program, under which the Company may, from time to time, in its sole discretion, issue and sell through Jefferies, acting as sales agent, up to $ 350.0 million of shares of the Company’s common stock, par value $ 0.000041666 per share (the “Common Shares”). The issuance and sale, if any, of the Common Shares by the Company under the Sales Agreement will be made pursuant to a prospectus supplement, dated February 8, 2021, to the Company’s registration statement on Form S-3ASR, originally filed with the Securities and Exchange Commission on May 27, 2020, which became effective immediately upon filing.
Pursuant to the Sales Agreement, Jefferies may sell the Common Shares by any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act of 1933, as amended (the “Securities Act”). Jefferies will use commercially reasonable efforts consistent with its normal trading and sales practices to sell the Common Shares from time to time, based upon instructions from the Company (including any price or size limits or other customary parameters or conditions the Company may impose).
The Company will pay Jefferies a commission of up to 3.0 % of the gross sales proceeds of any Common Shares sold through Jefferies under the Sales Agreement.
The Company is not obligated to make any sales of Common Shares under the Sales Agreement. The offering of Common Shares pursuant to the Sales Agreement will terminate upon the earlier to occur of (i) the issuance and sale, through Jefferies, of all Common Shares subject to the Sales Agreement and (ii) termination of the Sales Agreement in accordance with its terms.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.