| Organization and Summary of Significant Accounting Policies | 1. Organization and Summary of Significant Accounting
Policies
Business Activities and Organization
Pfenex Inc. (the Company or Pfenex) is a clinical-stage development
and licensing biotechnology company focused on leveraging its
Pf ® Pf ® ® ®
Product Candidates and Collaborations
The following table summarizes certain information about the
Company’s lead product candidates:
Product Candidate
Branded Reference Drug
Program
Indication
Proposed Therapeutic Equivalent
PF708 – Teriparatide Forteo
Licensed in Mainland China, Hong Kong, Singapore, Malaysia &
Thailand;
Wholly-Owned Rest of World Osteoporosis
Novel Vaccines
Px563L/RPA563 – rPA based anthrax vaccines N/A U.S. Government Funded Anthrax post-exposure prophylaxis
The following table summarizes certain information about the
Company’s lead collaboration:
Collaboration Partner
Products
Indication
Jazz Pharmaceuticals Ireland Limited
Multiple Hematology/Oncology Products Various
PF708 is being developed as a therapeutic equivalent candidate to
Forteo, marketed by Eli Lilly and Company. The Company
completed enrollment in its Study PF708-301 in in mid-February 2018. parameters. Top-line immunogenicity
On April 18, 2018, the Company and China NT Pharma Group
Company Limited (NT Pharma) entered into a Development and License
Agreement (the NT Pharma Agreement), pursuant to which Pfenex
granted an exclusive license to NT Pharma to commercialize PF708 in
Mainland China, Hong Kong, Singapore, Malaysia and Thailand and a
non-exclusive
The Company is also developing Px563L/RPA563, novel anthrax vaccine
candidates, in response to the United States government’s
unmet demand for increased quantity, stability and dose-sparing
regimens of anthrax vaccine .
In July 2016, Pfenex and Jazz announced an agreement under which
Pfenex granted Jazz worldwide rights to develop and commercialize
multiple early stage hematology/oncology product candidates,
including PF743, a recombinant crisantaspase, and PF745, a
recombinant crisantaspase with half-life extension technology. In
December 2017, the parties amended the Jazz agreement, bringing the
total value of payments and potential payments associated with the
collaboration to $224.5 million. In addition, the Company may
be eligible to receive tiered royalties on worldwide sales of any
products resulting from the collaboration at rates reduced from
those under the 2016 agreement.
In addition to the Company’s lead product candidates, its
pipeline includes various other biosimilar candidates, including
PF582, the Company’s biosimilar candidate to Lucentis, and
PF529, the Company’s biosimilar candidate to Neulasta, as
well as vaccines and next generation biologic candidates. Following
its strategic review in November 2017, Pfenex decided to pause its
development activities for PF582 and PF529 and focus the
Company’s efforts and resources elsewhere in its product
portfolio. While the Company is seeking a new collaboration partner
for the development and commercialization of PF582 and PF529, there
are no assurances that it will find a new collaboration partner or
that the terms and timing of any such arrangements would be
acceptable to us.
The Company has several development and commercial partnerships in
place for CRM197, which is a non-toxic non-GMP
The Company’s revenue in the near term is primarily related
to monetizing its protein production platform through collaboration
agreements, service agreements, government contracts and reagent
protein product sales which may provide for various types of
payments, including upfront payments, funding of research and
development, milestone payments, intellectual property access fees
and licensing fees.
On March 15, 2018, the Company entered into an equity sales
agreement (Sales Agreement) with William Blair & Company,
L.L.C. (William Blair) to sell shares of the Company’s common
stock having aggregate sales proceeds of up to $20.0 million,
from time to time, through an “at the market” equity
offering program under which William Blair will act as sales agent.
Under the Sales Agreement, the Company sets the parameters for the
sale of shares, including the number of shares to be issued, the
time period during which sales are requested to be made, limitation
on the number of shares that may be sold in any one trading day and
any minimum price below which sales may not be made. The Sales
Agreement provides that William Blair will be entitled to
compensation for its services that will equal 3.0% of the gross
sales price per share of all shares sold through William Blair
under the Sales Agreement. The Sales Agreement shall automatically
terminate upon the issuance and sale of placement shares equaling
sales proceeds of $20.0 million and may be terminated earlier
by either the Company or William Blair upon five days’
notice. The Company has no obligation to sell any shares under the
Sales Agreement, and may at any time suspend solicitation and
offers under the Sales Agreement. As of March 31, 2018, the
Company had not sold any shares under the Sales Agreement.
Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with United States generally accepted
accounting principles, or U.S. GAAP, for interim financial
information and with the instructions of the Securities and
Exchange Commission, or SEC, on Form 10-Q 10-01 Regulation S-X. 10-K
Use of Estimates
The preparation of the accompanying unaudited consolidated
financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the
reported amounts (including assets, liabilities, revenues and
expenses) and related disclosures. Estimates have been prepared on
the basis of the most current and best available information.
However, actual results could differ from those estimates.
Risk and Uncertainties
The Company’s future results of operations involve a number
of risks and uncertainties. Factors that could affect the
Company’s future operating results and cause actual results
to vary materially from expectations include, but are not limited
to, uncertainty of results of clinical trials and reaching
milestones, uncertainty of regulatory approval of the
Company’s product candidates, uncertainty of market
acceptance of the Company’s products if approved for sale,
competition from substitute products and larger companies, securing
and protecting proprietary technology, strategic relationships and
dependence on key individuals.
Products developed by the Company require clearances from
international and domestic regulatory agencies prior to commercial
sales in such jurisdictions. There can be no assurance that the
products will receive the necessary clearances. If the Company was
denied clearance, clearance was delayed or the Company was unable
to maintain clearance, it could have a materially adverse impact on
the Company.
As of March 31, 2018, the Company had an accumulated deficit
of $172.7 million and expects to incur substantial operating
losses for the next several years. The Company believes that its
existing cash and cash equivalents and cash inflow from operations
will be sufficient to meet its anticipated cash needs for at least
the next 12 months. Although the Company believes it has sufficient
cash resources to fund all necessary activities leading up to and
including submission of an NDA for PF708 to the FDA (assuming
positive results from Study PF708-301),
Cash and Cash Equivalents
The Company considers all highly liquid investments that are
readily convertible into cash and have an original maturity of six
months or less at the time of purchase to be cash equivalents. Cash
amounts that are restricted as to withdrawal or usage are presented
as restricted cash. In January 2017, the Company entered into a
Borrower’s Pledge Agreement, which required $0.2 million
in restricted cash to be provided as security for its commercial
credit card arrangement with one of the Company’s banks.
Concentrations
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of cash, cash
equivalents, investments and accounts and unbilled receivables. The
Company has established guidelines intended to limit its exposure
to credit risk by placing investments with high credit quality
financial institutions, diversifying its investment portfolio and
placing investments with maturities that help maintain safety and
liquidity. All cash and cash equivalents were held at three major
financial institutions as of March 31, 2018 and
December 31, 2017. For the Company’s cash position of
$47.3 million as of March 31, 2018, which included
restricted cash of $0.2 million, the Company has exposure to
credit loss for amounts in excess of insured limits in the event
of non-performance by anticipate non-performance.
Additional credit risk is related to the Company’s
concentration of receivables. As of March 31, 2018 and
December 31, 2017, receivables were concentrated among two and
three customers representing 84% and 89% of total net receivables,
respectively. No allowance for doubtful accounts was recorded at
March 31, 2018 or December 31, 2017. Revenue from two
customers and/or collaboration partners represented 90% and 88% of
total revenue for the three months ended March 31, 2018 and
2017, respectively.
A portion of revenue is earned from sales outside the United
States. Non-U.S. revenue and non-U.S. sources
Three Months Ended March 31,
2018 2017
(in
thousands)
US Revenue $ 1,594 $ 1,057
Non-US 2,152 1,761
$ 3,746 $ 2,818
During the three months ended March 31, 2018 and 2017, Ireland
accounted for more than 10% of the Company’s revenue.
Revenue
The Company’s revenue is related to the monetization of its
protein production platform through collaboration agreements,
service agreements, license agreements, government contracts and
sales of reagent protein products, which may provide for various
types of payments, including upfront payments, funding of research
and development, milestone payments, intellectual property access
fees and licensing fees. The Company’s revenue generating
agreements also include potential revenues for achieving milestones
and for product royalties. The specifics of the Company’s
significant agreements are detailed in Note 7—Significant
Research and Development Agreements.
The Company considers a variety of factors in determining the
appropriate method of accounting for its collaboration agreements,
including whether multiple deliverables can be separated and
accounted for individually as separate units of accounting. Where
there are multiple deliverables within a collaboration agreement
that cannot be separated and therefore are combined into a single
unit of accounting, revenues are deferred and recognized using the
relevant guidance over the estimated period of performance. If the
deliverables can be separated, the Company applies the relevant
revenue recognition guidance to each individual deliverable. The
specific methodology for the recognition of the underlying revenue
is determined on a case-by-case basis
Upfront, nonrefundable licensing payments are assessed to determine
whether or not the licensee is able to obtain standalone value from
the license. Where the license does not have standalone
value, non-refundable license
Nonrefundable payments for research funding are generally
recognized as revenue over the period the underlying research
activities are performed.
Revenue under service agreements are recorded as services are
performed. These agreements do not require development achievement
as a performance obligation and provide for payment when services
are rendered. All such revenue is nonrefundable. Upfront,
nonrefundable payments for license fees, exclusivity and
feasibility services received in excess of amounts earned are
classified as deferred revenue and recognized as income over the
contract term or period of performance based on the nature of the
related agreement.
The Company recognizes revenue for its cost plus fixed fee
government contracts in accordance with the authoritative guidance
for revenue recognition including the authoritative guidance
specific to federal government contractors. Reimbursable costs
under the Company’s government contracts primarily include
direct labor, materials, subcontracts, accountable property and
indirect costs. In addition, the Company receives a fixed fee under
its government contracts, which is unconditionally earned as
allowable costs are incurred and is not contingent on success
factors. Reimbursable costs under the Company’s government
contracts, including the fixed fee, are generally recognized as
revenue in the period the reimbursable costs are incurred and
become billable.
The Company assesses milestone payments on an individual basis and
recognizes revenue from nonrefundable milestone payments when the
earnings process is complete and the payment is reasonably assured.
Nonrefundable milestone payments related to arrangements under
which the Company has continuing performance obligations are
recognized as revenue upon achievement of the associated milestone,
provided that (i) the milestone event is substantive and its
achievability was not reasonably assured at the inception of the
agreement, and (ii) the amount of the milestone payment is
reasonable in relation to the effort expended or the risk
associated with the milestone event. For the three months ended
March 31, 2018 and 2017, no revenue was recognized in
connection with the achievement of development milestones
associated with the Jazz collaboration.
The Company’s reagent protein products are primarily
comprised of internally developed reagent protein products.
Revenues for reagent product sales are reflected net of
attributable sales tax. The Company generally offers a 30 day
return policy. The Company recognizes reagent product revenue from
product sales when it is realized or realizable and earned. As of
March 31, 2018, the Company has had minimal product returns
related to reagent protein product sales. Therefore, no reserve for
warranty and return rights was recorded as of March 31, 2018
and December 31, 2017, respectively.
Revenue under arrangements where the Company outsources the cost of
fulfillment to third parties is evaluated as to whether the related
amounts should be recorded gross or net. The Company records
amounts collected from the customer as revenue, and the amounts
paid to suppliers as cost of revenue when it holds all or
substantially all of the risks and benefits related to the product
or service. For transactions where the Company does not hold all or
substantially all the risk, the Company uses net reporting and
therefore records the transaction as if the end-user made
Recently Adopted Accounting Pronouncements
In November 2016, the FASB issued ASU 2016-18, Statement beginning-of-period end-of-period
the beginning-of-period and end-of-period total 2016-18
In May 2017, the FASB issued ASU 2017-09, Compensation ASU 2017-09 was
Recently Issued Accounting Pronouncements Not Yet
Adopted
In May 2014, the Financial Accounting Standards Board (FASB) issued
Accounting Standards Update (ASU) No. 2014-09 Revenue
In February 2016, the FASB issued ASU No. 2016-02 Leases
In January 2017, the FASB issued ASU No. 2017-04, Intangibles current two-step quantitative |
