Delaware | 04-3221586 |
(State of Incorporation) | (I.R.S. Employer Identification Number) |
Large accelerated filer o | Accelerated filer x | |
Non-accelerated filer o | Smaller reporting company o | |
(Do not check if a smaller reporting company) |
PART I - FINANCIAL INFORMATION | |||
Item 1. — Unaudited Condensed Financial Statements | |||
3 | |||
4 | |||
5 | |||
6 | |||
15 | |||
24 | |||
25 | |||
25 | |||
25 | |||
25 | |||
25 | |||
25 | |||
25 | |||
25 | |||
26 |
2 |
June 30, 2014 | December 31, 2013 | |||||||
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) | ||||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 11,214 | $ | 15,579 | ||||
Marketable securities-short term | 51,989 | 59,116 | ||||||
Prepaid expenses and other current assets | 1,297 | 941 | ||||||
Total current assets | 64,500 | 75,636 | ||||||
Marketable securities-long term | 14,369 | 20,391 | ||||||
Property and equipment, net | 719 | 1,128 | ||||||
Other assets | 669 | 1,024 | ||||||
Total assets | $ | 80,257 | $ | 98,179 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 7,854 | $ | 8,470 | ||||
Note payable | 1,700 | 1,700 | ||||||
Current portion of deferred revenue | 11,056 | 11,031 | ||||||
Current portion of deferred gain on sale leaseback | 506 | 552 | ||||||
Total current liabilities | 21,116 | 21,753 | ||||||
Deferred revenue, net of current portion | 10,079 | 15,568 | ||||||
Deferred gain on sale leaseback, net of current portion | — | 232 | ||||||
Total liabilities | 31,195 | 37,553 | ||||||
Commitments and contingencies | ||||||||
Stockholders’ equity: | ||||||||
Preferred stock, $0.01 par value; 1,000,000 shares authorized; no shares issued or outstanding | — | — | ||||||
Common stock, $0.01 par value; 100,000,000 shares authorized; 62,771,636 and 62,736,207 shares issued and outstanding at June 30, 2014 and December 31, 2013, respectively | 628 | 627 | ||||||
Additional paid-in capital | 506,820 | 504,884 | ||||||
Accumulated other comprehensive income | 46 | 67 | ||||||
Accumulated deficit | (458,432 | ) | (444,952 | ) | ||||
Total stockholders’ equity | 49,062 | 60,626 | ||||||
Total liabilities and stockholders’ equity | $ | 80,257 | $ | 98,179 |
3 |
THREE MONTHS ENDED June 30, | SIX MONTHS ENDED June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
(IN THOUSANDS, EXCEPT PER SHARE DATA) | ||||||||||||||||
Research and development revenue | $ | 2,901 | $ | 4,436 | $ | 5,577 | $ | 10,097 | ||||||||
Costs and expenses: | ||||||||||||||||
Research and development | 6,236 | 8,082 | 12,967 | 16,263 | ||||||||||||
General and administrative | 3,071 | 3,198 | 6,321 | 6,598 | ||||||||||||
Total costs and expenses | 9,307 | 11,280 | 19,288 | 22,861 | ||||||||||||
Loss from operations | (6,406 | ) | (6,844 | ) | (13,711 | ) | (12,764 | ) | ||||||||
Interest income | 76 | 132 | 171 | 283 | ||||||||||||
Interest expense | (10 | ) | (6 | ) | (17 | ) | (10 | ) | ||||||||
Other income (expense) | 1 | (68 | ) | 77 | (70 | ) | ||||||||||
Net loss | (6,339 | ) | (6,786 | ) | (13,480 | ) | (12,561 | ) | ||||||||
Unrealized loss on marketable securities | (4 | ) | (67 | ) | (21 | ) | (58 | ) | ||||||||
Comprehensive loss | $ | (6,343 | ) | $ | (6,853 | ) | $ | (13,501 | ) | $ | (12,619 | ) | ||||
Basic and diluted net loss per share: | ||||||||||||||||
Net loss per share | $ | (0.10 | ) | $ | (0.11 | ) | $ | (0.22 | ) | $ | (0.20 | ) | ||||
Weighted average basic and diluted common shares outstanding | 62,627 | 62,473 | 62,605 | 62,429 |
4 |
SIX MONTHS ENDED JUNE 30, | ||||||||
2014 | 2013 | |||||||
(IN THOUSANDS) | ||||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (13,480 | ) | $ | (12,561 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 409 | 451 | ||||||
Amortization of premium/(discount) on marketable securities | 633 | 1,180 | ||||||
Amortization of deferred gain on sale leaseback | (278 | ) | (278 | ) | ||||
Non-cash stock compensation | 1,880 | 2,312 | ||||||
Loss (gain) on auction rate securities | (77 | ) | 70 | |||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses and other current assets | (356 | ) | (616 | ) | ||||
Other long-term assets | 355 | 128 | ||||||
Accounts payable and accrued expenses | (616 | ) | (1,977 | ) | ||||
Deferred revenue | (5,464 | ) | (7,099 | ) | ||||
Net cash used in operating activities | (16,994 | ) | (18,390 | ) | ||||
Cash flows from investing activities: | ||||||||
Purchases of marketable securities | (14,100 | ) | (9,063 | ) | ||||
Proceeds from sale or maturity of marketable securities | 26,672 | 26,176 | ||||||
Net cash provided by investing activities | 12,572 | 17,113 | ||||||
Cash flows from financing activities: | ||||||||
Proceeds from stock option exercises and employee stock plan purchases | 57 | 213 | ||||||
Net cash provided by financing activities | 57 | 213 | ||||||
Net decrease in cash and cash equivalents | (4,365 | ) | (1,064 | ) | ||||
Cash and cash equivalents, beginning of period | 15,579 | 14,327 | ||||||
Cash and cash equivalents, end of period | $ | 11,214 | $ | 13,263 |
5 |
1. | NATURE OF OPERATIONS AND BASIS OF PRESENTATION |
6 |
2. | COLLABORATIONS AND ALLIANCES |
7 |
8 |
3. | MARKETABLE SECURITIES AND FAIR VALUE MEASUREMENTS |
9 |
June 30, 2014 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
Security type | |||||||||||||||||
Corporate debt securities-short term | $ | 51,966 | $ | 27 | $ | (4 | ) | $ | 51,989 | ||||||||
Corporate debt securities-long term | 12,421 | 26 | (3 | ) | 12,444 | ||||||||||||
Total available-for-sale marketable securities | $ | 64,387 | $ | 53 | $ | (7 | ) | $ | 64,433 |
December 31, 2013 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
Security type | |||||||||||||||||
Corporate debt securities-short term | $ | 59,059 | $ | 62 | $ | (5 | ) | $ | 59,116 | ||||||||
Corporate debt securities-long term | 18,535 | 23 | (13 | ) | 18,545 | ||||||||||||
Total available-for-sale marketable securities | $ | 77,594 | $ | 85 | $ | (18 | ) | $ | 77,661 |
June 30, 2014 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
Security type | |||||||||||||||||
Auction rate securities | $ | 2,100 | $ | — | $ | (177 | ) | $ | 1,923 | ||||||||
Total trading securities | $ | 2,100 | $ | — | $ | (177 | ) | $ | 1,923 |
December 31, 2013 | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | |||||||||||||
Security type | |||||||||||||||||
Auction rate securities | $ | 2,100 | $ | — | $ | (254 | ) | $ | 1,846 | ||||||||
Total trading securities | $ | 2,100 | $ | — | $ | (254 | ) | $ | 1,846 |
10 |
June 30, 2014 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Cash equivalents | $ | 8,611 | $ | 8,611 | $ | — | $ | — | ||||||||
Corporate debt securities-short term | 51,989 | — | 51,989 | — | ||||||||||||
Corporate debt securities-long term | 12,446 | — | 12,446 | — | ||||||||||||
Auction rate securities-long term | 1,923 | — | — | 1,923 | ||||||||||||
Total | $ | 74,969 | $ | 8,611 | $ | 64,435 | $ | 1,923 | ||||||||
December 31, 2013 | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | |||||||||||||
Cash equivalents | $ | 12,247 | $ | 12,247 | $ | — | $ | — | ||||||||
Corporate debt securities-short term | 59,116 | — | 59,116 | — | ||||||||||||
Corporate debt securities-long term | 18,545 | — | 18,545 | — | ||||||||||||
Auction rate securities-long term | 1,846 | — | — | 1,846 | ||||||||||||
Total | $ | 91,754 | $ | 12,247 | $ | 77,661 | $ | 1,846 |
Amount | ||||
Balance at December 31, 2013 | $ | 1,846 | ||
Gain on auction rate securities | 77 | |||
Balance at June 30, 2014 | $ | 1,923 |
Amount | ||||
Balance at December 31, 2012 | $ | 1,789 | ||
Loss on auction rate securities | (70 | ) | ||
Balance at June 30, 2013 | $ | 1,719 |
11 |
Estimated Fair Value at June 30, 2014 | Valuation Technique | Unobservable Inputs | Range | ||||||||
Auction rate securities | $ | 1,923 | Discounted cash flow | ||||||||
Maximum rate | 1.58 | % | |||||||||
Liquidity risk premium | 3.00%–4.00 | % | |||||||||
Probability of earning maximum rate until maturity | 0.08%–0.14 | % | |||||||||
Probability of principal returned prior to maturity | 85.39%–87.57 | % | |||||||||
Probability of default | 12.35%–14.48 | % |
2014 | 2013 | |||||||
Accounts payable | $ | 308 | $ | 146 | ||||
Accrued payroll | 1,715 | 2,556 | ||||||
Accrued outsourced pre-clinical and clinical fees | 4,996 | 4,702 | ||||||
Accrued professional fees | 492 | 660 | ||||||
Other accrued expenses | 343 | 406 | ||||||
$ | 7,854 | $ | 8,470 |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Research and development | $ | 263 | $ | 343 | $ | 668 | $ | 837 | ||||||||
General and administrative | 531 | 604 | 1,212 | 1,475 | ||||||||||||
Total stock-based compensation expense | $ | 794 | $ | 947 | $ | 1,880 | $ | 2,312 |
12 |
Stock Options | Number of Shares | Weighted Average Exercise Price | ||||||
Outstanding as of December 31, 2013 | 7,511,814 | $ | 5.28 | |||||
Granted | 1,150,119 | 2.47 | ||||||
Cancelled | (183,876 | ) | 5.13 | |||||
Outstanding as of June 30, 2014 | 8,478,057 | $ | 4.91 | |||||
Exercisable as of June 30, 2014 | 5,862,497 | $ | 5.33 |
Shares | Weighted-Average Exercise Price | Weighted-Average Remaining Contractual Term (in years) | Aggregate Intrinsic Value | |||||||||||
Vested and unvested expected to vest at June 30, 2014 | 8,324,977 | $ | 4.91 | 5.8 | $ | 13 | ||||||||
Exercisable at June 30, 2014 | 5,862,497 | $ | 5.33 | 4.6 | $ | — |
Restricted Stock | Number of Shares | Weighted Average Grant Date Fair Value | ||||||
Unvested as of December 31, 2013 | 195,777 | $ | 2.51 | |||||
Vested | (49,041 | ) | 2.51 | |||||
Cancelled | (4,586 | ) | 2.51 | |||||
Unvested as of June 30, 2014 | 142,150 | $ | 2.51 |
13 |
14 |
10. SUBSEQUENT EVENT
On July 30, 2014, the Company approved plans to restructure its operations to better align its human and financial resources with the Company’s primary focus on clinical stage development programs and to extend the Company’s cash runway. Commencing on August 4, 2014, the Company began to reduce its current workforce from 61 to approximately 40 employees by the end of the year. Most of this reduction will come from the Company’s Discovery Group, which has been engaged primarily in early-stage, pre-clinical research.
The Company estimates that the costs associated with this action will be comprised principally of severance payments of approximately $1,000 and benefits continuation of approximately $100, all of which are expected to be paid by March 31, 2015. In addition, in the third quarter of 2014, the Company expects to incur non-cash charges of approximately $150 related to the modification of employee stock options associated with the restructuring.
15 |
16 |
17 |
June 30, | December 31, | Increase (decrease) | ||||||||||||||
2014 | 2013 | $ | % | |||||||||||||
(in millions) | ||||||||||||||||
Cash, cash equivalents and marketable securities-short term | $ | 63.2 | $ | 74.7 | (11.5 | ) | (15 | )% | ||||||||
Marketable securities-long term | 14.4 | 20.4 | (6.0 | ) | (30 | )% | ||||||||||
Notes payable | 1.7 | 1.7 | — | — | ||||||||||||
Working capital | 43.4 | 53.9 | (10.5 | ) | (19 | )% |
Six Months Ended | ||||||||||||
June 30, | June 30, | Increase | ||||||||||
2014 | 2013 | (decrease) | ||||||||||
(in millions) | ||||||||||||
Cash flow from: | ||||||||||||
Operating activities | $ | (17.0 | ) | $ | (18.4 | ) | $ | 1.4 | ||||
Investing activities | 12.6 | 17.1 | (4.5 | ) | ||||||||
Financing activities | 0.1 | 0.2 | (0.1 | ) |
18 |
On July 30, 2014, the Company approved plans to restructure its operations to better align its human and financial resources with the Company’s primary focus on clinical stage development programs and to extend the Company’s cash runway beyond the anticipated time for achievement of key milestones, including the completion of the METIV-HCC trial. Commencing on August 4, 2014, the Company began to reduce its current workforce from 61 to approximately 40 employees by the end of the year. Most of this reduction will come from the Company’s Discovery Group, which has been engaged primarily in early-stage, pre-clinical research.
The Company estimates that the costs associated with this action will be comprised principally of severance payments of approximately $1.0 million and benefits continuation of approximately $100 thousand, all of which are expected to be paid by March 31, 2015. In addition, in the third quarter of 2014, the Company expects to incur non-cash charges of approximately $150 thousand related to the modification of employee stock options associated with the restructuring.
Payment due by period | ||||||||||||||||||||
Contractual Obligations | Total | Less than 1 year | 1 - 3 years | 3 - 5 years | More than 5 years | |||||||||||||||
Note payable | $ | 1,700 | $ | 1,700 | $ | — | $ | — | $ | — | ||||||||||
Operating lease obligations | 2,673 | 2,673 | — | — | — | |||||||||||||||
Purchase obligations | 4,941 | 4,941 | — | — | — | |||||||||||||||
Total | $ | 9,314 | $ | 9,314 | $ | — | $ | — | $ | — |
19 |
Increase (decrease) | ||||||||||||||||
2014 | 2013 | $ | % | |||||||||||||
(in millions) | ||||||||||||||||
For the three months ended June 30: | ||||||||||||||||
Research and development revenue | $ | 2.9 | $ | 4.4 | $ | (1.5 | ) | (35 | )% | |||||||
For the six months ended June 30: | ||||||||||||||||
Research and development revenue | $ | 5.6 | $ | 10.1 | $ | (4.5 | ) | (45 | )% |
20 |
Increase (decrease) | ||||||||||||||||
2014 | 2013 | $ | % | |||||||||||||
(in millions) | ||||||||||||||||
For the three months ended June 30: | ||||||||||||||||
Research and development | $ | 6.2 | $ | 8.1 | $ | (1.9 | ) | (23 | )% | |||||||
For the six months ended June 30: | ||||||||||||||||
Research and development | $ | 13.0 | $ | 16.3 | $ | (3.3 | ) | (20 | )% |
Oncology program | Current status | Six Months Ended June 30, 2014 | Program-to-date | ||||||||
c-Met program—tivantinib | Phase 3 | $ | 1.4 | $ | 83.5 |
21 |
Clinical Phase | Estimated Completion Period | |||
Phase 1 | 1 – 2 years | |||
Phase 2 | 2 – 3 years | |||
Phase 3 | 2 – 4 years |
● | the number of clinical sites included in the trials; |
● | the length of time required to enroll suitable patients; |
● | the number of patients that ultimately participate in the trials; |
● | the duration of patient follow-up to ensure the absence of long-term product-related adverse events; and |
● | the efficacy and safety profile of the product. |
Increase (decrease) | ||||||||||||||||
2014 | 2013 | $ | % | |||||||||||||
(in millions) | ||||||||||||||||
For the three months ended June 30: | ||||||||||||||||
General and administrative | $ | 3.1 | $ | 3.2 | $ | (0.1 | ) | (4 | )% | |||||||
For the six months ended June 30: | ||||||||||||||||
General and administrative | $ | 6.3 | $ | 6.6 | $ | (0.3 | ) | (4 | )% |
22 |
Increase (decrease) | ||||||||||||||||
2014 | 2013 | $ | % | |||||||||||||
(in thousands) | ||||||||||||||||
For the three months ended June 30: | ||||||||||||||||
Interest income | $ | 76 | $ | 132 | $ | (56 | ) | (42 | )% | |||||||
Interest expense | (10 | ) | (6 | ) | 4 | 67 | % | |||||||||
Other income (expense) | 1 | (68 | ) | 69 | 101 | % | ||||||||||
For the six months ended June 30: | ||||||||||||||||
Interest income | $ | 171 | $ | 283 | $ | (112 | ) | (40 | )% | |||||||
Interest expense | (17 | ) | (10 | ) | 7 | 70 | % | |||||||||
Other income (expense) | 77 | (70 | ) | 147 | 210 | % |
23 |
24 |
EXHIBIT NO. | DESCRIPTION | |
31.1 | Rule 13a-14(a) Certificate of Chief Executive Officer, filed herewith. | |
31.2 | Rule 13a-14(a) Certificate of Principal Financial Officer, filed herewith. | |
32 | Rule 13a-14(b) Certificate of Chief Executive Officer and Chief Financial Officer, filed herewith. | |
101 | Interactive Data File |
25 |
ARQULE, INC.
ArQule, Inc. | ||
Date: August 5, 2014 | /s/ PETER S. LAWRENCE | |
Peter S. Lawrence | ||
President and Chief Operating Officer | ||
(Principal Financial Officer) | ||
/s/ ROBERT J. WEISKOPF | ||
Robert J. Weiskopf | ||
Vice President of Finance, | ||
Corporate Controller and Treasurer | ||
(Principal Accounting Officer) |
26 |