AC Immune (ACIU) 6-K Current report (foreign)

Exhibit 99.1

Interim Condensed Financial Statements (Unaudited)

Interim Condensed Financial
Statements (Unaudited) (IFRS) as of and for the three and six months ended June 30, 2017

AC Immune SA
EPFL Innovation Park

Building B
1015 Lausanne

Switzerland

 1

Balance Sheets

	Notes		As of June 30, 2017			As of December 31, 2016
in CHF thousands
ASSETS
Non-current assets
Property, plant and equipment		5		2,403			1,120
Financial assets				126			86
Total non-current assets				2,529			1,206
Current assets
Prepaid expenses		6		1,964			1,278
Accrued income				1,079			889
Finance receivable		7		146			-
Other current receivables				1,390			517
Cash and cash equivalents				124,180			152,210
Total current assets				128,759			154,894
Total assets				131,288			156,100
SHAREHOLDERS’ EQUITY AND LIABILITIES
Shareholders’ equity
Share capital				1,142			1,135
Share premium				188,207			188,166
Accumulated losses				(68,457	)		(46,921	)
Total shareholders’ equity				120,892			142,380
Non-current liabilities
Accrued interest – long-term		7		72			-
Long-term financing obligation		7		386			-
Net employee defined benefit liabilities				3,976			3,798
Total non-current liabilities				4,434			3,798
Current liabilities
Trade payables and other payables				954			4,035
Accrued expenses				4,667			5,366
Deferred income				341			521
Total current liabilities				5,962			9,922
Total liabilities				10,396			13,720
Total shareholders’ equity and liabilities				131,288			156,100

The accompanying notes form an integral part of these Interim Condensed Financial Statements (Unaudited).

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Statements of Income / (Loss)

			For the Three Months Ended June 30,						For the Six Months Ended June 30,
	Notes		2017			2016			2017			2016
in CHF thousands except for share and per share data
Revenue
Contract revenue		3		753			19,964			2,759			20,451
Total revenue				753			19,964			2,759			20,451
Operating expenses
Research & development expenses				(6,838	)		(5,646	)		(14,313	)		(11,018	)
General & administrative expenses				(2,168	)		(1,851	)		(4,534	)		(2,750	)
Total operating expenses				(9,006	)		(7,497	)		(18,847	)		(13,768	)
Operating loss				(8,253	)		12,467			(16,088	)		6,683
Finance income				464			589			921			207
Interest expense				(74	)		-			(75	)		-
Finance costs				(4,464	)		(112	)		(6,540	)		(116	)
Finance result, net				(4,074	)		477			(5,694	)		91
Income/(loss) before tax				(12,327	)		12,944			(21,782	)		6,774
Income tax expense				-			-			-			-
Income/(loss) for the period				(12,327	)		12,944			(21,782	)		6,774
Earnings/(loss) per share (EPS):		4
Basic income/(loss) for the period attributable to equity holders				(0.22	)		0.27			(0.38	)		0.14
Diluted income/(loss) for the period attributable to equity holders				(0.22	)		0.25			(0.38	)		0.13
Weighted-average number of shares used to compute EPS basic				57,048,187			48,017,453			56,951,306			47,209,976
Weighted-average number of shares used to compute EPS diluted				57,048,187			51,096,175			56,951,306			50,465,568

Statements of Comprehensive Income / (Loss)	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016
in CHF thousands
Income/(Loss) for the period		(12,327	)		12,944			(21,782	)		6,774
Other comprehensive loss not to be reclassified to income or loss in subsequent periods (net of tax):
Re-measurement losses on defined benefit plans		-			(184	)		-			(368	)
Total comprehensive income/(loss), net of tax		(12,327	)		12,760			(21,782	)		6,406

The accompanying notes form an integral part of these Interim Condensed Financial Statements (Unaudited).

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Statements of Changes in Equity

	Note	Share capital		Share premium			Accumulated losses			Total
in CHF thousands
Balance as of January 1, 2016			928		110,496			(40,381	)		71,043
Net income for the period			-		-			6,774			6,774
Other comprehensive (loss)			-		-			(368	)		(368	)
Total comprehensive income			-		-			6,406			6,406
Share-based payments			-		-			150			150
Issuance of shares:
preferred Series E extension shares			28		13,178			-			13,206
exercise of options			32		199			-			231
Transaction costs			-		(494	)		-			(494	)
Balance as of June 30, 2016			988		123,379			(33,825	)		90,542

	Share capital		Share premium		Accumulated losses			Total
in CHF thousands
Balance as of January 1, 2017		1,135		188,166		(46,921	)		142,380
Net loss for the period		-		-		(21,782	)		(21,782	)
Other comprehensive loss		-		-		-			-
Total comprehensive loss		-		-		(21,782	)		(21,782	)
Share-based payments		-		-		254			254
Issuance of shares:
restricted share awards		-		8		(8	)		-
exercise of options		7		33		-			40
Balance as of June 30, 2017		1,142		188,207		(68,457	)		120,892

The accompanying notes form an integral part of these Interim Condensed Financial Statements (Unaudited).

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Statements of Cash Flows

	For the Six Months Ended June 30,
	2017			2016
in CHF thousands
Operating activities
Net income/(loss) for the period		(21,782	)		6,774
Adjustments to reconcile net loss for the period to net cash flows:
Depreciation of property, plant and equipment		241			139
Finance result, net		5,619			(89	)
Share-based compensation expense		254			150
Changes in pensions		178			41
Accrued interest on long-term debt		72			-
Changes in working capital:
Prepaid expenses		(686	)		(1,764	)
Accrued income		(190	)		(155	)
Other current receivables		(873	)		(15,409	)
Other current liabilities		(699	)		272
Deferral of unearned revenue (current)		(180	)		2,049
Accounts payable		(3,050	)		906
Long-term financing obligation		189			-
Cash used in operating activities		(20,907	)		(7,086	)
Financial costs		(5	)		(116	)
Net cash flows used in operating activities		(20,912	)		(7,202	)
Investing activities
Purchases of property, plant and equipment		(1,524	)		(307	)
Rent deposit		(40	)		-
Net cash flows used in investing activities		(1,564	)		(307	)
Financing activities
Proceeds from issuance of preferred Series E shares		-			13,344
Transaction costs of issue of shares		-			(472	)
Proceeds from issuance of shares		40			199
Cost on issue of shares - option plan		-			(18	)
Proceeds from issuance of common shares		-			106
Proceeds from long-term financing		51			-
Net cash flows provided by financing activities		91			13,159
Net increase/(decrease) in cash and cash equivalents		(22,385	)		5,650
Cash and cash equivalents at January 1		152,210			76,522
Exchange gain/(loss) on cash and cash equivalents		(5,645	)		205
Cash and cash equivalents at June 30		124,180			82,377
Net decrease/(increase) in cash and cash equivalents		(22,385	)		5,650

Additional Information:

A non-cash increase to long-term financing obligation totaling CHF 146 thousand was recognized in the Balance Sheet with a corresponding increase to finance receivable. Please see Note 7 for further discussion.

The accompanying notes form an integral part of these Interim Condensed Financial Statements (unaudited).  

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Notes to the Interim Condensed Financial Statements (Unaudited)
(in CHF thousands, except share and per share amounts)

1. Corporate information

AC Immune SA (the “Company,” or “AC Immune,” “ACI,” “we,” “our,” “ours,” “us”) is a clinical stage biopharmaceutical company leveraging our two proprietary technology platforms to discover, design and develop novel, proprietary medicines for prevention, diagnosis and treatment of neurodegenerative diseases associated with protein misfolding. Misfolded proteins are generally recognized as the leading cause of neurodegenerative diseases, such as Alzheimer’s disease, or AD, and Parkinson’s disease, or PD, with common mechanisms and drug targets, such as Abeta, tau and alpha-synuclein. Our lead product candidate is crenezumab, a humanized, monoclonal, conformation-specific anti-Abeta antibody that we developed using our proprietary SupraAntigen platform. The two Phase 3 clinical studies for crenezumab were commenced in early 2016 and in February 2017, respectively. We use our two unique proprietary platform technologies, SupraAntigen (conformation-specific biologics) and Morphomer (conformation-specific small molecules), to discover, design and develop medicines and diagnostics to target misfolded proteins.

The Interim Condensed Financial Statements of AC Immune SA as of and for the three and six months ended June 30, 2017 were authorized for issuance by the Company’s Audit Committee on August 7, 2017.

2. Basis of preparation and changes to the Company’s accounting policies

Statement of compliance

These Interim Condensed Financial Statements as of and for the three and six months ended June 30, 2017 have been prepared in accordance with International Accounting Standard 34 (IAS 34),Interim Financial Reporting, and such financial information should be read in conjunction with the audited financial statements in the Company’s Annual Report on Form 20-F for the year ended December 31, 2016.

Basis of measurement

The financial statements have been prepared under the historical cost convention.

Non-vested Shares

We estimate the fair value of nonvested stock awards (restricted stock) as being equal to the market value of the common stock on the date of the award. We classify our share-based payments as equity-classified awards. We measure equity-classified awards at their grant date fair value and do not subsequently remeasure them. Compensation costs related to equity-classified awards are equal to the fair value of the award at grant-date amortized over the vesting period of the award using the graded method. We reclassify that portion of vested awards to share premium.

Critical judgments and accounting estimates

The preparation of the Company’s interim condensed financial statements in conformity with IAS 34 requires management to make judgments, estimates and assumptions that affect the amounts reported in the interim condensed financial statements and accompanying notes and the related application of accounting policies as it relates to the reported amounts of assets, liabilities, income and expenses.

The areas where AC Immune has had to make judgments, estimates and assumptions relate to (i) revenue recognition on collaboration and licensing agreements, (ii) clinical development accruals, (iii) pensions, (iv) income taxes, and, (v) share-based compensation. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised.

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Income taxes

The Company has tax losses that can generally be carried forward for a period of 7 years from the period the loss was incurred. These tax losses represent potential value to the Company to the extent that the Company is able to create taxable profits before the expiry period of these tax losses. Consistent with prior years, the Company has not recognized any deferred tax assets relating to tax losses available as the recognition criteria have not been met at the balance sheet date.

The estimated tax expense for the three and six months ended June 30, 2017 is zero. The estimated tax expense is based on the best estimate of the weighted average annual income tax rate expected for the full financial year to December 31, 2017. As we expect to incur a loss for the full year, we do not anticipate any income tax expense.

Accounting policies, new standards, interpretations and amendments adopted by the Company

The accounting policies adopted in the preparation of the interim condensed financial statements are consistent with those followed in the preparation of the Company’s annual financial statements for the year ended December 31, 2016, except for the adoption of new standards and interpretations effective as of January 1, 2017. The Company has not adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

Recent Accounting Pronouncements

The Company is currently analyzing the impact of IFRS 9 (Financial Instruments), IFRS 15 (Revenue from Contracts with Customers) and IFRS 16 (Leases) which have been issued by the IASB but not yet adopted on our financial statements. Further consideration of the pending adoption of IFRS is discussed below.

The Company is currently analyzing the impact of IFRS 15 Revenue from Contracts with Customers, which amends revenue recognition requirements and establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The standard replaces IAS 18 Revenue and IAS 11 Construction Contracts and Related Interpretations. The new standard, as amended, becomes effective for the Company in the first quarter of fiscal year 2018, but allows the Company to adopt early. The Company plans to adopt this accounting standard in the first quarter of fiscal year 2018.

The Company currently anticipates adopting this standard using the modified retrospective method. Under this method, the cumulative effect of adopting the standard will be recorded to retained earnings on January 1, 2018. We have substantially completed our initial assessment of the effect of this adoption, including a detailed review of all of our contracts to identify potential differences in accounting as a result of the new standard and potential use of the practical expedient regarding contract modifications. Based on the analyses to date, we do not anticipate a material impact on our total revenues or costs.

Going concern

The interim condensed financial statements have been prepared on the basis that the Company will continue as a going concern after considering the Company’s cash position of CHF 124.2 million as of June 30, 2017.

To date, the Company has financed its cash requirements primarily from its successful initial public offering in the third quarter of fiscal 2016, other share issuances and revenues from collaboration agreements. The Company is a clinical stage company and is exposed to all the risks inherent to establishing a business. Inherent to the Company’s business are various risks and uncertainties, including the substantial uncertainty as to whether current projects will succeed. The Company’s success may depend in part upon its ability to (i) establish and maintain a strong patent position and protection, (ii) enter into collaborations with partners in the biotech and pharmaceutical industry, (iii) successfully move its product candidates through clinical development, (iv) attract and retain key personnel, and (v) acquire capital to support its operations.

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3. Revenues

AC Immune generated revenues of CHF 0.8 and CHF 2.8 million in the three and six months ended June 30, 2017, respectively.

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2017		2016		2017		2016
in CHF thousands
Collaboration and license revenue		753		19,964		2,759		20,451
Total revenues		753		19,964		2,759		20,451

3.1. Licensing and collaboration agreements

3.1.1 Research collaboration and license revenue

Alpha-synuclein and TDP-43 PET Imaging Tracers - Collaboration with Biogen

In April 2016 as part of our non-exclusive research collaboration agreement with Biogen International GmbH (“Biogen”), we received CHF 1.5 million for a technology access fee, which was deferred and recognized over a 12-month period. As of June 30, 2017, we have recognized all revenues associated with this access fee.

In April 2017, we began the second year of our Collaboration. For the three and six months ended June 30, 2017, we have recognized CHF 861 thousand and CHF 1.3 million for research contribution and collaboration services, respectively.

Tau-PET imaging agent in AD – Collaboration agreement of 2014 with Piramal Imaging

In March 2017, we invoiced Piramal for a EUR 1 million (CHF 1.1 million) milestone related to the initiation of “Part B” of the first-in-man Phase 1 clinical trial for PSP (Progressive Supranuclear Palsy). As we met all performance obligations on reaching the milestone, we have recognized this income as revenue in the first quarter of fiscal 2017.

We are also entitled to further clinical milestones totaling EUR 6 million should the compound make it through to Phase 3 clinical studies and are further entitled to potential regulatory, commercialization and sales based milestones totaling EUR 150 million.

Recombinant protein therapeutic candidate – Collaboration with Essex Bio-Technology Limited

On May 19, 2017, we entered into a Research Project Agreement with Essex Bio-Technology Limited (“Essex”) to develop a recombinant protein therapeutic candidate acting on a unique neuroprotective mechanism for treatment of neurological diseases, such as Alzheimer’s disease and frontotemporal dementia. Essex will provide joint research commitment as well as financial support to AC Immune for the pre-IND development of the biological agent.

As part of this agreement, the Companies have agreed to an initial two year Research Plan, which intends to develop a basic Fibroblast Growth Factor (“bFGF”) as a therapeutic for the treatment of neurogenerative diseases and to generate of novel antibody therapeutics.

Under the terms of the agreement, Essex will provide support to AC Immune until the selection of a collaboration product by the Joint Steering Committee, up to a maximum of CHF 750 thousand per year. The Company did not perform collaboration work in Q2 2017 and as such did not recognize revenues.

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3.1.2 Milestones

Tau Vaccine in AD–Collaboration agreement of 2014 with Janssen Pharmaceuticals

In December 2014, we entered into a partnership with Janssen Pharmaceuticals, a Johnson & Johnson company, to develop and commercialize therapeutic anti-tau vaccines for the treatment of AD and potentially other tauopathies. The partnership includes a worldwide exclusive license and research collaboration. We and Janssen will co-develop the lead therapeutic vaccine, ACI-35, through Phase 1b completion. From Phase 2 and onward, Janssen will assume responsibility for the clinical development, manufacturing and commercialization of ACI-35. ACI-35 is an active therapeutic vaccine stimulating the patient’s immune system to produce a polyclonal antibody response against phosphorylated tau protein.

The agreement also allows for the collaboration to be expanded to a second indication based on the same anti-tau vaccine program and intellectual property related to this program.

In January 2016, we received payments of CHF 1.5 million for pre-payment of research and external research costs for 2016. We recognized the proceeds over a 12-month period on a straight-line basis pursuant to the terms of the collaboration agreement. In May 2016, we received a CHF 4.9 million payment for reaching a clinical milestone in the Phase 1b study. As we met all performance obligations on reaching the milestone, we have recognized this income as revenue.

As part of this agreement, AC Immune and Janssen have committed to spending CHF 13.8 million in clinical development until the end of Phase 1b. Any remaining commitment not spent on the Phase 1b study will be carried forward to cover additional development costs with Janssen continuing to be responsible for any costs above the stated CHF 13.8 million. Under the terms of the agreement, Janssen may terminate the agreement at any time after completion of the Phase 1b clinical study by providing 90 days notice to us.

Anti-tau antibody in AD – Collaboration agreement of 2012 with Genentech

In June 2012, we entered into an exclusive global license agreement and research collaboration with Genentech, Inc. to commercialize our anti-tau antibodies for use as immunotherapeutics. The value of this exclusive, worldwide alliance is potentially greater than CHF 400 million and includes upfront and milestone payments. In addition to milestones, we will be eligible to receive royalties on sales at a percentage rate ranging from the mid-single digits to high single digits. The agreement also provides for collaboration on two additional indications built on the same anti-tau antibody program as well as a potential anti-tau diagnostic product.

As of June 30, 2017, we have received payments totaling CHF 45 million including a CHF 14 million milestone recognized in the second quarter of 2016 related to the start of phase 1 clinical trials for this program.

Genentech may terminate the agreement at any time by providing 90 days notice to us. In such event, all costs incurred are still refundable.

Anti-Abeta antibody in AD - Collaboration agreement of 2006 with Genentech

In November 2006, AC Immune signed an exclusive, worldwide licensing agreement for crenezumab, our humanized monoclonal antibody targeting misfolded Abeta. Genentech commenced a first Phase 3 clinical study in the first quarter of fiscal 2016 and in February 2017, Genentech started a second Phase 3 clinical trial. If crenezumab receives regulatory approval, we will be entitled to receive royalties that are tied to annual sales volumes with different royalty rates applicable in the U.S. and Europe. These percentage rates range from the high single digits to the mid-teens.

Under the agreement with Genentech, we may become eligible to receive payments totaling up to approximately USD 340 million, excluding royalties. To date, we have received total payments of USD 65 million (CHF 70.1 million).

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4. Earnings/(loss) per share

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2017			2016		2017			2016
in CHF thousands except share and per share data
Net income/(loss) attributable to equity holders of the Company
Earnings/(loss) per share (EPS):		(12,327	)		12,944		(21,782	)		6,774
Basic earnings/(loss) for the period attributable to equity holders		(0.22	)		0.27		(0.38	)		0.14
Diluted earnings/(loss) for the period attributable to equity holders		(0.22	)		0.25		(0.38	)		0.13
Weighted-average number of shares used to compute EPS basic		57,048,187			48,017,453		56,951,306			47,209,976
Weighted-average number of shares used to compute EPS diluted		57,048,187			51,096,175		56,951,306			50,465,568

For the three and six months ended June 30, 2017 and 2016 basic and diluted earnings/(loss) per share is based on the weighted average number of shares issued and outstanding. Weighted-average shares outstanding excludes antidilutive shares underlying options and non-vested restricted shares that totaled 1,412,227 and 112,127 from the computation of diluted earnings/(loss) per common share for the three months ended June 30, 2017 and 2016, respectively. Weighted-average shares outstanding excludes antidilutive shares underlying options and non-vested restricted shares that totaled 1,564,907 and 118,569 from the computation of diluted earnings (loss) per common share for the six months ended June 30, 2017 and 2016, respectively.

5. Property, plant and equipment

As of June 30, 2017, the Company had property, plant and equipment totaling CHF 2.4 million compared to CHF 1.1 million for the year ended December 31, 2016. The Company’s total depreciation expense for the three and six months ended June 30, 2017 totaled CHF 142 thousand and CHF 241 thousand, respectively.

6. Prepaid expenses

Prepaid expenses include prepaid research and development costs, administrative costs and pension expenses totaling CHF 2.0 million and CHF 1.3 million as of June 30, 2017 and 2016, respectively.

7. Long-term financing obligation

On January 4, 2016 and September 13, 2016 for fiscal years 2016 and 2017, respectively, AC Immune obtained separate funding commitment notices from the LuMind Research Down Syndrome Foundation (“LuMind”) totaling USD 200 thousand in each instance. Per the Research Grant Agreement, the terms stipulate that AC Immune has an obligation to reimburse LuMind for an amount equal to 125% of the then funding commitment made by LuMind to AC Immune. AC Immune has accordingly recorded a long-term financing obligation for the total USD 400 thousand (CHF 386 thousand) committed and a corresponding interest accrual of USD 75 thousand (CHF 72 thousand). As AC Immune is yet to receive USD 150 thousand (CHF 146 thousand) as of June 30, 2017 from LuMind, this amount is recorded as a finance receivable within current assets; these outstanding funds are committed for 2017.

8. Subsequent events

In July 2017, AC Immune and Janssen effected the Second Amendment to its December 2014 License, Development and Commercialization Agreement (“Agreement”). The Amendment allows for the alignment of certain Agreement payment provisions with the new Development Plan and Research Plan activities. ACI and Janssen will jointly share R&D costs until the second Phase 2 or first Phase 3 trial begins.

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