What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2021-03-01 compared with 2020-03-02 · 97 added, 120 removed, 188 unchanged (54% of the section changed)

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Financial Statements and Supplementary Data,” and our consolidated financial statements beginning on page F-1 of this report.

We are a biopharmaceutical company dedicated to developing and delivering medicines for patients with B-cell mediated diseases, including Chronic Lymphocytic Leukemia (CLL), non-Hodgkin Lymphoma (NHL) and Multiple Sclerosis (MS).

We have developed a robust B-cell directed research and development (R&D) platform for identification of key B-cell pathways of interest and rapid clinical testing.

Currently, we have five B-cell targeted drug candidates in clinical development, with the lead two therapies, ublituximab (TG-1101) and umbralisib (TGR-1202), in pivotal trials for CLL, NHL and MS.

Ublituximab is a novel anti-CD20 monoclonal antibody (mAb) that has been glycoengineered for enhanced potency over first generation antibodies.

Umbralisib is an oral, once daily, dual inhibitor of PI3K-delta and CK1-epsilon, which may lead to a differentiated safety profile.

When used together in combination therapy, ublituximab and umbralisib are referred to as "U2".

Additionally, in early clinical development we have an anti-PD-L1 monoclonal antibody referred to as cosibelimab (TG-1501), an oral Bruton’s Tyrosine Kinase (“BTK”) inhibitor referred to as TG-1701, and an anti-CD47/CD19 bispecific antibody referred to as TG-1801.

TG Therapeutics is a fully-integrated, commercial stage biopharmaceutical company focused on the acquisition, development and commercialization of novel treatments for B-cell malignancies and autoimmune diseases.

In addition to an active research pipeline including five investigational medicines across these therapeutic areas, we have received accelerated approval from the U.S.

Food and Drug Administration (FDA) for UKONIQ (umbralisib), for the treatment of adult patients with relapsed or refractory marginal zone lymphoma who have received at least one prior anti-CD20-based regimen and relapsed or refractory follicular lymphoma who have received at least three prior lines of systemic therapies.

Currently, we have two programs in Phase 3 development for the treatment of patients with relapsing forms of multiple sclerosis (RMS) and patients with chronic lymphocytic leukemia (CLL) and several investigational medicines in Phase 1 clinical development.

We also actively evaluate complementary products, technologies and companies for in-licensing, partnership, acquisition and/or investment opportunities.

To date, we have not received approval for the sale of any of our drug candidates in any market and, therefore, have not generated any product sales from our drug candidates.

Our license revenues currently consist of license fees arising from our agreement with Ildong.

In accordance with Financial Accounting Standards Board (“FASB”) ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), which the Company adopted on January 1, 2018, we recognize upfront license fee revenues ratably over the estimated period in which we will have certain performance obligations, with unamortized amounts recorded as deferred revenue.

We have not earned any revenues from the commercial sale of any of our drug candidates.

Our research and development expenses consist primarily of expenses related to in-licensing of new product candidates, fees paid to consultants and outside service providers for clinical and laboratory development, facilities-related and other expenses relating to the design, development, manufacture, testing and enhancement of our drug candidates and technologies.

We expense our research and development costs as they are incurred.

Research and development expenses for the years ended December 31, 2019, 2018 and 2017 were approximately $148.4 million, $153.8 million and $96.9 million, respectively, excluding non-cash compensation expenses related to research and development.

The following table sets forth the research and development expenses per project, exclusive of non-cash compensation expenses, for the periods presented.

Research and development expenses for the years ended December 31, 2020, 2019 and 2018 were approximately $151.9 million, $148.4 million and $153.8 million, respectively, excluding noncash compensation expenses related to research and development.

The following table sets forth the research and development expenses per project, exclusive of noncash compensation expenses, for the periods presented.

(in thousands)

Early Clinical Pipeline & Pre-Clinical

Our general and administrative expenses consist primarily of salaries and related expenses for executive, finance and other administrative personnel, recruitment expenses, professional fees and other corporate expenses, including investor relations, legal activities and facilities-related expenses.

Our results of operations include non-cash compensation expenses as a result of the grants of restricted stock and stock options.

Our general and administrative expenses consist primarily of expenses related to the US launch of UKONIQ, including salaries and related expenses for our commercialization team and commercial development activities.

Other general and administrative expenses consist of executive, finance and other administrative personnel, recruitment expenses, professional fees and other corporate expenses, including investor relations, legal activities and facilities-related expenses.

Our results of operations include noncash compensation expenses as a result of the grants of restricted stock and stock options.

Compensation expense for awards of restricted stock and stock options granted to employees and directors represents the fair value of the award recorded over the respective vesting periods of the individual awards.

The expense is included in the respective categories of expense in the consolidated statements of operations.

We expect to continue to incur significant non-cash compensation expenses.

We expect to continue to incur significant noncash compensation expenses.

We recognize all share-based payments to employees and non-employee directors (as compensation for service) as noncash compensation expense in the consolidated financial statements based on the fair values of such payments.

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Our clinical trials will be lengthy and expensive.

Even if these trials show that our drug candidates are effective in treating certain indications, there is no guarantee that we will be able to record commercial sales of any of our drug candidates in the near future, or at all.

In addition, we expect losses to continue as we fund in-licensing and development of new drug candidates.

As we further our development efforts, we may enter into additional third-party collaborative agreements and incur additional expenses, such as licensing fees and milestone payments.

In addition, we will need to further establish a commercial infrastructure required to manufacture, market and sell our drug candidates following approval, if any, by the FDA or a foreign health authority, which would result in incurring significant additional expenses.

In addition, we will need to maintain and expand our commercial infrastructure for the manufacturing, marketing and selling of UKONIQ and our drug candidates following approval, if any, by the FDA or a foreign health authority, which would result in incurring significant additional expenses.

As a result, our annual results may fluctuate and a year-by-year comparison of our operating results may not be a meaningful indication of our future performance.

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Research and development:

Non-cash stock expense associated with in-licensing agreements

Noncash stock expense associated with in-licensing agreements

Noncash compensation

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Noncash Stock Expense Associated with In-Licensing Agreement (Research and Development).

Noncash stock expense associated with in-licensing agreement (research and development) amounted to $0.1 million for the year ended December 31, 2019, as compared to $4.0 million during the comparable period in 2018.

The expense during the year ended December 31, 2018 was recorded in conjunction with the 333,868 total shares of common stock issued to Novimmune and Jiangsu Hengrui as upfront payments for the licenses to the CD47/CD19 and BTK programs.

Noncash stock expense associated with in-licensing agreement (research and development) amounted to zero for the year ended December 31, 2020, as compared to $0.1 million during the comparable period in 2019.

Noncash Compensation Expense (Research and Development).

Noncash compensation expense (research and development) related to equity incentive grants remained consistent between the two periods totaling $5.8 million for the year ended December 31, 2019, as compared to $5.6 million during the comparable period in 2018.

Noncash compensation expense (research and development) related to equity incentive grants totaled $14.0 million for the year ended December 31, 2020, as compared to $5.8 million during the comparable period in 2019.

The increase in noncash compensation expense was primarily due to an increase in research and development personnel and a higher stock price during the year ended December 31, 2020.

Other Research and Development Expenses .

Other research and development expenses decreased by $1.5 million from $149.8 million for the year ended December 31, 2018 to $148.3 million for the year ended December 31, 2019.

The decrease in R&D expense is primarily attributable to the winding down of our late-stage clinical development programs during the year ended December 31, 2019.

We expect our other research and development costs to continue to decrease modestly during 2020.

Other research and development expenses increased by $3.6 million from $148.3 million for the year ended December 31, 2019 to $151.9 million for the year ended December 31, 2020.

The increase in R&D expense is primarily attributable to the achievement of various milestones, offset by a decrease in manufacturing expense during the year ended December 31, 2020.

We expect our other research and development costs to remain at consistent levels throughout 2021.

Noncash Compensation Expense (General and Administrative).

Noncash compensation expense (general and administrative) related to equity incentive grants decreased by $1.8 million from $7.3 million for the year ended December 31, 2018 to $5.5 million during the year ended December 31, 2019.

The decrease in noncash compensation expense was primarily related to more vesting of restricted stock granted to executive personnel during the year ended December 31, 2018.

Noncash compensation expense (general and administrative) related to equity incentive grants increased by $60.8 million from $5.5 million for the year ended December 31, 2019 to $66.3 million during the year ended December 31, 2020.

The increase in noncash compensation expense was primarily related to more milestone-based vesting of restricted stock granted to executive personnel during the year ended December 31, 2020.

Other General and Administrative Expenses .

Other general and administrative expenses increased by $32.0 million from $9.5 million for the year ended December 31, 2019 to $41.5 million for the year ended December 31, 2020.

The increase was due primarily to increased personnel and other general and administrative costs.

We expect our other general and administrative expenses to increase during 2020 as commercial costs will increase in preparation for potential launch.

The increase was due primarily to commercial costs, including personnel, incurred in preparation for the launch of UKONIQ.

We expect our other general and administrative expenses to increase modestly during 2021.

Interest Expense .

Interest expense increased by $1.0 million to $6.3 million for the year ended December 31, 2020, as compared to expense of $5.3 million for year ended December 31, 2019.

The increase is mainly due to the interest expense related to the Hercules financing agreement.

We expect our interest expense to decrease modestly during 2020.

The increase is mainly due to interest expense related to administrative fees in connection with contract manufacturing costs during the year ended December 31, 2020.

Other Income.

Other income decreased by $1.0 million to $0.5 million for the year ended December 31, 2020, as compared to $1.5 million for the year ended December 31, 2019.

The decrease in other income is mainly due to a greater change in the fair value of notes payable during the year ended December 31, 2018.

The decrease in other income is mainly due to a decrease in interest income during the year ended December 31, 2020.

We expect our other income to remain at a comparable level during 2021.

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License revenue is related to the amortization of an upfront payment of $2.0 million associated with our license agreement with Ildong.

The upfront payment from Ildong will be recognized as license revenue on a straight-line basis through December 2025, which represents the estimated period over which the Company will have certain ongoing responsibilities under the sublicense agreement.

The upfront payment from Ildong will be recognized as license revenue on a straight-line basis through December 2025, which represents the estimated period over which we will have certain ongoing responsibilities under the sublicense agreement.

Noncash Stock Expense Associated with In-Licensing Agreement (Research and Development).

Noncash stock expense associated with in-licensing agreement (research and development) amounted to $4.0 million for the year ended December 31, 2018, as compared to zero during the comparable period in 2017.

Noncash Compensation Expense (Research and Development).

Noncash compensation expense (research and development) related to equity incentive grants remained consistent between the two periods totaling $5.6 million for the years ended December 31, 2018 and 2017.

Other Research and Development Expenses.

Other research and development expenses increased by $52.9 million from $96.9 million for the year ended December 31, 2017 to $149.8 million for the year ended December 31, 2018.

The increase in R&D expense is primarily attributable to ongoing late-stage clinical development programs and related manufacturing costs for ublituximab and umbralisib during the year ended December 31, 2018.

Other research and development expenses decreased by $1.5 million from $149.8 million for the year ended December 31, 2018 to $148.3 million for the year ended December 31, 2019.

The decrease in R&D expense is primarily attributable to the winding down of our late-stage clinical development programs during the year ended December 31, 2019.

Noncash Compensation Expense (General and Administrative).

The decrease in noncash compensation expense was primarily related to a decrease in the measurement date fair value of certain consultant restricted stock during the year ended December 31, 2018 and greater compensation expense during the year ended December 31, 2017 related to restricted stock granted to executive personnel.

The decrease in noncash compensation expense was primarily related to more vesting of restricted stock granted to executive personnel during the year ended December 31, 2018.

Other General and Administrative Expenses.

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The increase was due primarily to increased personnel and other general and administrative costs.

Other Expense (Income), Net .

Other income increased by $0.7 million from $0.2 million for the year ended December 31, 2017 to $0.9 million for the year ended December 31, 2018.

The increase is mainly due to an increase in interest income during 2018.

Interest Expense.

Interest expense increased by $4.4 million to $5.3 million for the year ended December 31, 2019, as compared to expense of $0.9 million for year ended December 31, 2018.

The increase is mainly due to the interest expense related to the Hercules financing agreement.

Other Income.

Other income decreased by $0.3 million to $1.5 million for the year ended December 31, 2019, as compared to $1.8 million for the year ended December 31, 2018.

The decrease in other income is mainly due to a greater change in the fair value of notes payable during the year ended December 31, 2018.

LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of cash have been from the sale of equity securities, and the issuance of debt.

We have not yet commercialized any of our drug candidates and cannot be sure if we will ever be able to do so.

Even if we commercialize one or more of our drug candidates, we may not become profitable.

Our ability to achieve profitability depends on a number of factors, including our ability to obtain regulatory approval for our drug candidates, successfully complete any post-approval regulatory obligations and successfully commercialize our drug candidates alone or in partnership.

Our major sources of cash have been proceeds from the private placement and public offering of equity securities, and in 2019 from our loan and security agreement executed with Hercules Capital, Inc.

(“Hercules”) (see Note 7 for more information).

As of December 31, 2020 we had not yet generated revenue from drug sales of UKONIQ.

UKONIQ first became commercially available in the United States in February of 2021.

Even with the commercialization of UKONIQ and the future commercialization of our other drug candidates, we may not become profitable.

Our ability to achieve profitability depends on our ability to generate revenue and many other factors, including our ability to obtain regulatory approval for our drug candidates;

successfully complete any post-approval regulatory obligations;

and successfully commercialize our drug candidates alone or in partnership.

We may continue to incur substantial operating losses even if we begin to generate revenues from our drug candidates.

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The increase in cash used in operating activities was due primarily to increased expenditures associated with our clinical development programs for ublituximab and umbralisib.

For the year ended December 31, 2019, net cash used in investing activities was $0.7 million as compared to cash provided by investing activities of $1.2 million for the year ended December 31, 2018.

The decrease in net cash provided by investing activities was primarily due to greater proceeds from the sale of short-term securities during the year ended December 31, 2018.

For the year ended December 31, 2019, net cash provided by financing activities of $204.2 million related to the net proceeds from debt financings and net proceeds from the issuance of common stock as part of our ATM program, a public offering in March 2019, and a registered direct offering in December 2019.

For the year ended December 31, 2020, net cash used in investing activities was $24.5 million as compared to cash used in investing activities of $0.7 million for the year ended December 31, 2019.

The increase in net cash used in investing activities was primarily due to greater investment in short-term securities during the year ended December 31, 2020.

For the year ended December 31, 2020, net cash provided by financing activities of $679.8 million related to the net proceeds from the issuance of common stock as part of our ATM program and public offerings in May 2020 and December 2020.

In December 2014, we filed a shelf registration statement on Form S-3 (the "2015 S-3"), which was declared effective in January 2015.

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In connection with the 2017 S-3, we entered into an At-the-Market Issuance Sales Agreement (the "2017 ATM") with Jefferies LLC, Cantor Fitzgerald & Co., FBR Capital Markets & Co., SunTrust Robinson Humphrey, Inc., Raymond James & Associates, Inc., Ladenburg Thalmann & Co.

Wainwright & Co., LLC (each an "Agent"

Wainwright & Co., LLC (each a "2017 Agent"

and collectively, the "2017 Agents"), relating to the sale of shares of our common stock.

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During the year ended December 31, 2019, we sold a total of 13,620,165 shares of common stock under the 2017 ATM for aggregate total gross proceeds of approximately $99.3 million at an average selling price of $7.29 per share, resulting in net proceeds of approximately $97.5 million after deducting commissions and other transactions costs.

On September 5, 2019, we filed an automatic “shelf registration” statement on Form S-3 (the “2019 WKSI Shelf”) as a “well-known seasoned issuer” as defined in Rule 405 under the Securities Act, which registered an unlimited and indeterminate amount of debt or equity securities for future issuance and sale.

The 2019 WKSI Shelf was declared effective in September 2019.

In connection with the 2019 WKSI Shelf, we entered into an At-the-Market Issuance Sales Agreement (the “2020 ATM”) with Jefferies LLC, Cantor Fitzgerald & Co.

Riley Securities, Inc.

(each a “2020 Agent” and collectively, the “2020 Agents”), relating to the sale of shares of our common stock.

Under the 2020 ATM, we paid the 2020 Agents a commission rate of up to 3.0% of the gross proceeds from the sale of any shares of common stock.

In November 2020, we entered into an At-the-Market Issuance Sales Agreement (the “2021 ATM”) with the same terms and agents (each a “2021 Agent” and collectively, the “2021 Agents”) as the 2020 ATM.

During the year ended December 31, 2020, we sold a total of 8,528,286 shares of common stock under the 2020 ATM for aggregate total gross proceeds of approximately $187.5 million at an average selling price of $21.99 per share, resulting in net proceeds of approximately $184.2 million after deducting commissions and other transactions costs.

On September 5, 2019, we filed an automatic "shelf registration"

statement on Form S-3 (the "2019 WKSI") as a "well-known seasoned issuer"

as defined in Rule 405 under the Securities Act of 1933, as amended.

Under this shelf process, we may sell any combination of the securities described in the related prospectus in one or more offerings.

During the year ended December 31, 2020, we sold a total of 804,100 shares of common stock under the 2021 ATM for aggregate total gross proceeds of approximately $33.9 million at an average selling price of $42.18 per share, resulting in net proceeds of approximately $33.3 million after deducting commissions and other transactions costs.

The 2019 WKSI Shelf is currently our only active shelf-registration statement.

We may offer any combination of the securities registered under the 2019 WKSI Shelf from time to time in response to market conditions or other circumstances if we believe such a plan of financing is in the best interests of our stockholders.

We believe that the 2019 WKSI Shelf provides us with the flexibility to raise additional capital to finance our operations as needed.

Equity Financings

In March 2017, we completed an underwritten public offering of 5,128,206 shares of our common stock (plus a 30-day underwriter overallotment option to purchase up to an additional 769,230 shares of common stock, which was exercised) at a price of $9.75 per share.

Net proceeds from this offering, including the overallotment option, were approximately $54 million, net of underwriting discounts and offering expenses of approximately $3.6 million.

On March 1, 2019, we completed a public offering of 4,100,000 shares of our common stock (plus a 30-day underwriter overallotment option to purchase up to an additional 615,000 shares of common stock, which was exercised) at a price of $5.87.

Proceeds from this offering, including the overallotment, after underwriting discounts and offering expenses were approximately $27.5 million.

On December 22, 2019, we completed a securities purchase agreement with an institutional investor in which we agreed to sell 5,434,783 shares of our common stock at a price of $9.20.

On December 22, 2019, we completed a securities purchase agreement with an institutional investor in which we agreed to sell 5,434,783 shares of our common stock at a price of $9.20 per share.

Net proceeds from this offering were approximately $50.0 million.

In May 2020, we completed an underwritten public offering of 8,500,000 shares of our common stock (plus an underwriter option to purchase up to an additional 1,275,000 shares of common stock, which was exercised) at a price of $18 per share.

Net proceeds from this offering, including the overallotment, were approximately $165.1 million, net of underwriting discounts and offering expenses of approximately $10.8 million.

On December 17, 2020, we completed a public offering of 6,320,000 shares of our common stock (plus a 30-day underwriter overallotment option to purchase up to an additional 948,000 shares of common stock, which was exercised) at a price of $43.50 per share.

Net proceeds from this offering, including the overallotment, were approximately $297.2 million after underwriting discounts and offering expenses of approximately $19.0 million.

Debt Financings

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The first advance of $30.0 million was drawn on the Closing Date.

Two additional advances of $10.0 million may be drawn at our option but subject to certain clinical trial milestones, and the fourth advance of $10.0 million, available in minimum increments of $5.0 million, is available through December 15, 2020 subject to the approval of Hercules’ investment committee.

Two additional advances of $10.0 million may be drawn at our option but subject to certain clinical trial milestones, and the fourth advance of $10.0 million, available in minimum increments of $5.0 million, was available through December 15, 2020 subject to the approval of Hercules’ investment committee.

The Term Loan will mature on March 1, 2022 (the “Loan Maturity Date”).

Each advance accrues interest at a per annum rate of interest equal to the greater of either (i) the “prime rate” as reported in The Wall Street Journal plus 4.75%, and (ii) 10.25%.

Each advance accrues interest at a per annum rate of interest equal to the greater of either (i) the “prime rate” as reported in The Wall Street Journal plus 4.75%, or (ii) 10.25%.

The Term Loan provides for interest-only payments until October 1, 2020.

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This amount will be amortized to interest expense using the straight-line method, which approximates the effective interest method, over the life of the Term Loan.

OFF-BALANCE SHEET ARRANGEMENTS

We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities, or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.

OBLIGATIONS AND COMMITMENTS

As of December 31, 2019, we have known contractual obligations, commitments and contingencies of $97.6 million related to our long-term liabilities and operating lease obligations.

Payment due by period (in thousands)

Less than 1 year

More than 5 years

Contractual obligations

Operating leases

Long-term debt

Contract Manufacturer

In 2018, we entered into an agreement with a contract manufacturer for the clinical and potential commercial supply of one of our product candidates.

As part of this agreement, the contract manufacturer has agreed to defer payment of certain costs and expenses under the agreement in exchange for the payment of an administrative fee.

We have incurred expenses related to this agreement of approximately $47.2 million as of December 31, 2019, which include both service fees, raw material costs and administrative fees.

No payments have been made to the contract manufacturer as of December 31, 2019.

Accordingly, as of December 31, 2019, $47.2 million is included in current liabilities in the Company’s consolidated balance sheet, of which $19.6 million is due in the first quarter of 2020.

As of December 31, 2018, $18.4 million is included in long-term liabilities in the Company’s consolidated balance sheet.

To date we have incurred expenses related to this agreement of approximately $53.7 million as of December 31, 2020, which include service fees, raw material costs and administrative fees.

We have made payments of $37.4 million to the contract manufacturer as of December 31, 2020.

Accordingly, as of December 31, 2020, $15.7 million is

included in current liabilities in the Company’s consolidated balance sheet, of which $4.2 million is due in the first quarter of 2021.

We will incur an administrative fee of six percent (6%) per year starting from the date of invoice issuance.

For the year ended December 31, 2019, we have accrued $1.2 million in administrative fees in connection with these costs, which has been included in interest expense in the Company’s consolidated statements of operations.

For the years ended December 31, 2020, 2019 and 2018, we have accrued $1.2 million, $1.2 million and zero, respectively, in administrative fees in connection with these costs, which has been included in interest expense in the Company’s consolidated statements of operations.

In October 2014, we entered into an agreement (the “Office Agreement”) with Fortress Biotech, Inc.

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Our leases have remaining lease terms of 4 months to 11 years.

One lease has a renewal option to extend the lease for an additional term of 2 years.

One lease has a renewal option to extend the lease for an additional term of two years.

Under the Office Agreement, we agreed to pay FBIO our portion of the build-out costs, which have been allocated to us at the 45% rate mentioned above.

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Future minimum lease commitments as of December 31, 2020 total, in the aggregate, approximately $19.5 million through December 31, 2031.

The preceding table shows future minimum lease commitments, which include our office leases in New York, New Jersey, North Carolina and Tennessee by period as of December 31, 2019.

CRITICAL ACCOUNTING POLICIES

Our future minimum lease commitments include our office leases in New York, New Jersey, North Carolina and Tennessee as of December 31, 2020.

OFF-BALANCE SHEET ARRANGEMENTS

CRITICAL ACCOUNTING POLICIES AND SIGNIFICANT JUDGMENTS AND ESTIMATES

The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with U.S.

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Our critical accounting policies include the following:

Revenue Recognition .

Effective January 1, 2018, the Company began recognizing revenue under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”), using the modified retrospective transition method.

The impact of adopting the new revenue standard was not material to our consolidated financial statements and there was no adjustment to beginning retained earnings on January 1, 2018.

The core principle of this new revenue standard is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.

The following five steps are applied to achieve that core principle:

Identify the contract with the customer

Identify the performance obligations in the contract

Determine the transaction price

Allocate the transaction price to the performance obligations in the contract

Recognize revenue when the company satisfies a performance obligation

In order to identify the performance obligations in a contract with a customer, a company must assess the promised goods or services in the contract and identify each promised good or service that is distinct.

A performance obligation meets ASC 606’s definition of a “distinct” good or service (or bundle of goods or services) if both of the following criteria are met:

● The customer can benefit from the good or service either on its own or together with other resources that are readily available to the customer (i.e., the good or service is capable of being distinct).

● The entity’s promise to transfer the good or service to the customer is separately identifiable from other promises in the contract (i.e., the promise to transfer the good or service is distinct within the context of the contract).

If a good or service is not distinct, the good or service is combined with other promised goods or services until a bundle of goods or services is identified that is distinct.

The transaction price is the amount of consideration to which an entity expects to be entitled in exchange for transferring promised goods or services to a customer, excluding amounts collected on behalf of third parties (for example, some sales taxes).

The consideration promised in a contract with a customer may include fixed amounts, variable amounts, or both.

Variable consideration is included in the transaction price only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

The transaction price is allocated to each performance obligation on a relative standalone selling price basis.

The transaction price allocated to each performance obligation is recognized when that performance obligation is satisfied, at a point in time or over time as appropriate.

Stock Compensation .

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Compensation expense for such awards that vest upon the achievement of milestones is recognized when the achievement of such milestone becomes probable.

Accruals for Clinical Research Organization and Clinical Site Costs.

We make estimates of costs incurred in relation to external clinical research organizations, or CROs, and clinical site costs.

We analyze the progress of clinical trials, including levels of patient enrollment, invoices received and contracted costs when evaluating the adequacy of the amount expensed and the related prepaid asset and accrued liability.

Significant judgments and estimates must be made and used in determining the accrued balance and expense in any accounting period.

We review and accrue CRO expenses and clinical trial study expenses based on work performed and rely upon estimates of those costs applicable to the stage of completion of a study.

Accrued CRO costs are subject to revisions as such trials progress to completion.

Revisions are charged to expense in the period in which the facts that give rise to the revision become known.

With respect to clinical site costs, the financial terms of these agreements are subject to negotiation and vary from contract to contract.

Payments under these contracts may be uneven, and depend on factors such as the achievement of certain events, the successful recruitment of patients, the completion of portions of the clinical trial or similar conditions.

The objective of our policy is to match the recording of expenses in our financial statements to the actual services received and efforts expended.

As such, expense accruals related to clinical site costs are recognized based on our estimate of the degree of completion of the event or events specified in the specific clinical study or trial contract.

Accounting For Income Taxes .

In preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate.

This process involves management estimation of our actual current tax exposure and assessment of temporary differences resulting from differing treatment of items for tax and accounting purposes.

These differences result in deferred tax assets and liabilities.

We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance.

To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the consolidated statements of operations.

Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets.

We have fully offset our deferred tax assets with a valuation allowance.

Our lack of earnings history and the uncertainty surrounding our ability to generate taxable income prior to the reversal or expiration of such deferred tax assets were the primary factors considered by management in maintaining the valuation allowance.

Accrued Research and Development Expenses.

As part of the process of preparing our financial statements, we are required to estimate our accrued expenses.

This process involves reviewing open contracts, communicating with our personnel to identify services that have been performed on our behalf and estimating the level of service performed and the associated cost incurred for the service when we have not yet been invoiced or otherwise notified of the actual cost.

The majority of our service providers invoice us monthly for services performed or when contractual milestones are met.

We make estimates of our accrued expenses as of each balance sheet date in our financial statements based on facts and circumstances known to us at that time.

We periodically confirm the accuracy of our estimates with the service providers and make adjustments, if necessary.

Examples of estimated accrued research and development expenses include:

● fees paid to contract research organizations (CROs) in connection with clinical studies;

● fees paid to contract manufacturing organizations (CMOs);

● fees paid to trial sites in connection with clinical studies;

● fees paid to vendors associated with licenses/milestones.

We base our expenses related to clinical studies on our estimates of the services received and efforts expended pursuant to contracts with multiple CROs that conduct and manage clinical studies on our behalf.

The financial terms of these agreements are subject to an initial negotiation, vary from contract to contract and may result in uneven payment flows.

There may be instances in which payments made to our vendors will exceed the level of services provided and result in a prepayment of the clinical expense.

Payments under some of these contracts depend on factors such as the successful enrollment of patients and the completion of clinical trial milestones.

In accruing certain service fees, we estimate the time period over which services will be performed, enrollment of patients, number of sites activated and the level of effort to be expended in each period.

If the actual timing of the performance of services or the level of effort varies from our estimate, we adjust the accrual or prepaid accordingly.

Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low in any particular period.

RECENTLY ISSUED ACCOUNTING STANDARDS

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We elected the package of practical expedients permitted under the transition guidance, which allows us to carryforward our historical lease classification and our assessment on whether a contract is or contains a lease.

The adoption of this guidance resulted in the addition of material balances of right of use assets and lease liabilities to our consolidated balance sheets at January 1, 2019, primarily relating to our lease of office space (see Note 8).

The adoption of this guidance resulted in the addition of material balances of ROU assets and lease liabilities to our consolidated balance sheets at January 1, 2019, primarily relating to our lease of office space (see Note 8).

The impact to our consolidated statements of operations was not material as a result of this standard.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis