| 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 Pf ® ® ®
Product Candidates and Collaborations
The following table summarizes certain information about the
Company’s lead product candidates and collaborations:
Product Candidate
Branded Reference Drug
Program
Indication
Proposed Therapeutic Equivalent
PF708 – Teriparatide Forteo
• Licensed in the United States to Alvogen;
• Licensed in Mainland China, Hong Kong,
Singapore, Malaysia, Thailand to NT Pharma;
• Wholly-Owned Rest of World Osteoporosis
Multiple Hematology/Oncology Various
• Jazz Pharmaceuticals Ireland Limited Various
Novel Vaccines
Px563L and RPA563 – rPA based anthrax vaccines N/A
• U.S. Government Funded Anthrax post-exposure prophylaxis
Proposed Therapeutic Equivalent : PF708 –
Teriparatide
PF708 is being developed as a therapeutic equivalent candidate to
Forteo, which is approved and marketed by Eli Lilly and
Company for the treatment of osteoporosis patients at a high risk
of fracture. In April 2018, the Company and NT Pharma entered into
a Development and License Agreement (NT Pharma Agreement), pursuant
to which the Company granted an exclusive license to NT Pharma to
commercialize PF708 in Mainland China, Hong Kong, Singapore,
Malaysia and Thailand and a non-exclusive
Collaboration Partner: Jazz
Pharmaceuticals Ireland Limited
In July 2016, the Company and Jazz announced an agreement under
which the Company 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.
Novel Vaccines: Px563L and
RPA563 – rPA based anthrax vaccines
The Company is also developing Px563L and 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 .
Pf ē nex Expression Technology
Licenses: CRM197
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 CRM197
product sales, commercial license agreements, service agreements,
and government contracts, 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.
Other Pipeline Products
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, the Company decided to pause
its development activities for PF582 and PF529 and focus the
Company’s efforts and resources elsewhere in its product
portfolio.
At the Market Offering Program
In March 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. As of
September 30, 2018, the Company had not sold any shares under
the Sales Agreement.
Follow-on
In May 2018, the Company completed a public offering of common
stock in which it sold 7,820,000 shares of its common stock at an
offering price of $5.50 per share, which included the full exercise
by the underwriters of their option to purchase an additional
1,020,000 shares, pursuant to the Company’s existing shelf
registration statement. The net proceeds generated from this
transaction, after underwriting discounts and commissions and
offering costs, were approximately $39.5 million.
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 September 30, 2018, the Company had an accumulated
deficit of $194.5 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 including all necessary activities
leading up to and including potential commercial launch of PF708 in
the United States as early as the fourth quarter of 2019, subject
to FDA acceptance, approval of the new drug application and other
factors.
Cash and Cash Equivalents
The Company considers all highly liquid investments that are
readily convertible into cash and have an original maturity of 90
days 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 September 30, 2018 and
December 31, 2017. For the Company’s cash position of
$68.0 million as of September 30, 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 September 30, 2018 and
December 31, 2017, receivables were concentrated among three
customers representing 99% and 89% of total net receivables,
respectively. No allowance for doubtful accounts was recorded at
September 30, 2018 or December 31, 2017. For the three
months ended September 30, 2018 and 2017, revenue was
concentrated among two customers and/or collaboration partners
representing 89% and two customers and/or collaborative partners
representing 94% of total revenues, respectively. Revenue from two
customers and/or collaboration partners represented 87% and 91% of
total revenue for the nine months ended September 30, 2018 and
2017, respectively.
A portion of revenue is earned from sales outside the United
States. Non-U.S. non-U.S.
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 2018 2017 2018 2017
US revenue $ 1,371 $ 2,190 $ 3,877 $ 4,453
Non-US 2,199 2,834 7,629 6,418
Total revenue $ 3,570 $ 5,024 $ 11,506 $ 10,871
During the three and nine months ended September 30, 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 CRM197, 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. To the
extent an arrangement contains a contingent deliverable, the
Company will recognize the allocated consideration once the
deliverable has been fulfilled. 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 nine months ended
September 30, 2018, $1.3 million in revenue was
recognized in connection with the Merck and Jazz collaborations,
with no revenue recognized for the quarter. For the three and nine
months ended September 30, 2017, $1.0 million in 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
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 Financial Accounting Standards Board (FASB)
issued Accounting Standards Update (ASU) 2016-18, Statement
of Cash Flows (Topic 230): Restricted Cash 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
– Stock Compensation (Topic 718), Scope of Modification
Accounting ASU 2017-09 was
Recently Issued Accounting Pronouncements Not Yet
Adopted
In May 2014, the FASB issued ASU No. 2014-09, Revenue
from Contracts with Customers (Topic 606)
In February 2016, the FASB issued ASU No. 2016-02, Leases
(Topic 842) 2018-10, Codification
Improvements to Topic 842, Leases 2018-11, Leases (Topic 842):
Targeted Improvements right-of-use
In January 2017, the FASB issued ASU No. 2017-04, Intangibles
– Goodwill and Other (Topic 350): Simplifying the Test for
Goodwill Impairment current two-step quantitative
In June 2018, the FASB issued
ASU No. 2018-07, Compensation-Stock
Compensation (Topic 718),
In August 2018, the FASB issued ASU
No. 2018-15, Intangibles—Goodwill
and Other-Internal-Use 350-40): internal-use ASU 2018-15 is |
