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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to

Commission file number 001-38650

Y-mAbs Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

Delaware

    

47-4619612

(State or other jurisdiction of

(I.R.S. Employer

incorporation or organization)

Identification No.)

230 Park Avenue

Suite 3350

New York, NY 10169

(Address of principal executive offices)

(Zip Code)

(646) 885-8505

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Common Stock, $0.0001 par value

YMAB

Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes   No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer 

    

Accelerated filer 

Non-accelerated filer 

Smaller reporting company 

Emerging growth company 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   No  .

There were 43,668,130 shares of Common Stock ($0.0001 par value) outstanding as of November 2, 2022.

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FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical facts, contained in this Quarterly Report on Form 10-Q, including statements regarding our business strategy, future operations and results thereof, future financial position, future revenue, projected costs, prospects, current and prospective products, product approvals, research and development costs, current and prospective collaborations, timing and likelihood of success, plans and objectives of management, expected market growth and future results of current and anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “contemplate,” “intend,” “may,” “might,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” “would”, “goal,” “aim” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words.

We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements.

The forward-looking statements contained in this Quarterly Report on Form 10-Q are made as of the date of this Quarterly Report on Form 10-Q, and we undertake no obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

Unless expressly indicated or the context requires otherwise, the terms ”Y-mAbs,” “company,” “we,” “us,” and “our” in this document refer to Y-mAbs Therapeutics, Inc., a Delaware corporation, and, where appropriate, its subsidiaries.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this Quarterly Report on Form 10-Q, particularly in the “Risk Factors” section, that could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, licensing agreements, collaborations, joint ventures or investments that we may make.

SUMMARY OF RISK FACTORS

Our business is subject to a number of risks, including risks that may prevent us from achieving our business objectives or may adversely affect our business, financial condition, results of operations, cash flows, and prospects.

These risks are discussed more fully below under “Risk Factors” and include, but are not limited to, the following:

We may not be able to successfully commercialize DANYELZA® (naxitamab-gqgk), referred to as DANYELZA, for the treatment of relapsed/refractory high-risk neuroblastoma in bone and/or bone

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marrow, in the United States or in any other jurisdictions where we may receive marketing approval in the future;
We may not be able to successfully implement our business model and our plans to obtain regulatory approval and develop and commercialize omburtamab, and other product candidates, including the potential clinical efficacy, safety and other benefits thereof;
Our expectations with respect to the rate and degree of market acceptance and clinical utility for DANYELZA or any current or future product candidate for which we may receive marketing approval may not be realized;
We may not be successful in obtaining approval of our biological license application, or BLA, for omburtamab, or a priority review voucher, or PRV, for omburtamab and expectations with respect to the commercial value from any such PRV may not be realized;
We may not be successful in implementing our business strategy, including our ability and plans in continuing to build out our commercial infrastructure and successfully launching, marketing, and selling DANYELZA, omburtamab and any current or future product candidate for which we may receive marketing approval, including our plans with respect to the focus and activities of our sales force, the nature of our marketing, market access and patient support activities of DANYELZA and related assumptions;
Expectations with respect to the pricing, coverage and reimbursement of, and the extent to which patient assistance programs are utilized for DANYELZA, omburtamab or any current or future product candidate for which we may receive marketing approval may not be realized;
Expectations with respect to our ongoing and future clinical trials for DANYELZA and omburtamab and other product candidates, whether conducted by us or by any of our collaborators, may not be realized, including the timing of initiation of these trials, the pace of enrollment, the completion of enrollment, the availability of data from, and the outcome of, these trials, and the expected dates of BLA submission and potential approval by the United States Food and Drug Administration, or FDA, and equivalent foreign regulatory authorities;
Our ability to manage our business, operations and clinical development plans and timelines have been and could be further adversely affected by the effects of health epidemics, including the COVID-19 pandemic, on the manufacturing, clinical trial and other business activities performed by us or by third parties with whom we conduct business, including our contract manufacturers, or CMOs, contract research organizations, or CROs, shippers and others;
We may be unable to attract, integrate, manage and retain qualified personnel or key employees;
Expectations with respect to the timing of and our ability to obtain and maintain regulatory, marketing and reimbursement approvals for our product candidates may not be realized;
We may be unable to successfully implement our commercialization, marketing and manufacturing capabilities and strategy;
If we are unable to establish and maintain sufficient intellectual property position, strategy and scope of protection for the intellectual property rights covering our product candidates and technology, or if the scope of the intellectual property protection obtained is not sufficiently broad, our competitors could develop and commercialize products similar or identical to ours and our ability to successfully commercialize our products, product candidates and other proprietary technologies, if approved, may be adversely affected;
We may be unable to identify and develop additional product candidates and technologies with significant commercial potential;
We may be unable to enter into collaborations or strategic partnerships for the development and commercialization of our product candidates and future operations, and the potential benefits of any such collaboration or partnership may not be realized;
We are dependent on our ability to continue to maintain and leverage our relationship with Memorial Sloan Kettering Cancer Center, or MSK, including our exclusive rights to the 2015 MSK License Agreement (as amended), or MSK License Agreement, the 2020 SADA Technology License Agreement, or SADA License Agreement, and current and future technology and our relationship with MSK as a user of DANYELZA and any future products;

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Our expectations related to the use of our cash and cash equivalents, and how long our cash resources are expected to last, may be inaccurate and we may require additional funding sooner than we expect;
We will require substantial additional funding to finance our operations, complete the development and commercialization of our product and product candidates and evaluate future product candidates, and programs or other operations;
The timing and amount of any future financing transaction and our common stock price and other factors may impact our ability to raise additional capital on favorable terms;
Expectations with respect to our financial performance, including our estimates regarding revenues, expenses, cash flow, and capital expenditure requirements may not be realized;
We face significant competition in an environment of rapid technological and scientific change, and there is a possibility that our competitors may achieve regulatory approval before us or develop therapies that are safer or more effective than ours;
Our business, financial condition and results of operations have been and may in the future be adversely affected by the global COVID-19 pandemic, including the pace of commercialization of DANYELZA;
Our business, financial condition and results of operations have been and may in the future be adversely affected by macroeconomic conditions, such as rising inflation, uncertain global financial markets, supply chain disruptions, and by geopolitical events, including the recent global conflict resulting from the invasion of Ukraine by Russia, and sanctions related thereto, which resulted in the suspension of our clinical trial and regulatory activities in Russia;
We currently depend on a small number of third party CMOs and expect it would be difficult to find a suitable replacement for the complex and difficult manufacture of our product candidates. The loss of any of these CMOs or the failure of any of them to meet their obligations to us could affect our ability to develop omburtamab in a timely manner or to continue to sell DANYELZA;
We are subject to government laws and regulations, and we may be unable to comply with healthcare laws and regulations in the United States and any applicable foreign countries, including, without limitation, those applying to the marketing and sale of pharmaceutical products; and
Other risks and uncertainties described in the section herein entitled “Risk Factors.”

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Page

PART I — FINANCIAL INFORMATION

Item 1.

Consolidated Financial Statements:

5

Consolidated Balance Sheets (unaudited) as of September 30, 2022 and December 31, 2021

5

Consolidated Statements of Net Loss and Comprehensive Loss (unaudited) for the three and nine months ended September 30, 2022 and 2021

6

Consolidated Statements of Changes in Stockholders’ Equity (unaudited) for the three and nine months ended September 30, 2022 and 2021

7

Consolidated Statements of Cash Flows (unaudited) for the nine months ended September 30, 2022 and 2021

8

Notes to Consolidated Financial Statements (unaudited)

9

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

26

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

46

Item 4.

Controls and Procedures

46

PART II — OTHER INFORMATION

Item 1.

Legal Proceedings

46

Item 1A.

Risk Factors

47

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

111

Item 3.

Defaults Upon Senior Securities

111

Item 4.

Mine Safety Disclosures

111

Item 5.

Other Information

111

Item 6.

Exhibits

111

You should read this Quarterly Report on Form 10-Q and the documents we have filed as exhibits to this Quarterly Report on Form 10-Q completely and with the understanding that our actual future results may be materially different from the plans, intentions, and expectations disclosed in the forward-looking statements we may make.

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PART I – FINANCIAL INFORMATION

Item 1.  Consolidated Financial Statements

Y-MABS THERAPEUTICS, INC.

Consolidated Balance Sheets

(unaudited)

(in thousands, except share data)

    

September 30, 

    

December 31, 

2022

2021

ASSETS

 

  

 

  

CURRENT ASSETS

 

  

 

  

Cash and cash equivalents

$

114,526

$

181,564

Accounts receivable, net

9,251

7,712

Inventories

6,242

5,512

Other current assets

 

3,225

 

7,473

Total current assets

 

133,244

 

202,261

Property and equipment, net

 

1,372

 

1,847

Operating lease right-of-use assets

2,169

3,842

Intangible assets, net

1,530

1,663

Other assets

 

5,600

 

3,170

TOTAL ASSETS

$

143,915

$

212,783

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

  

LIABILITIES

 

  

 

  

Accounts payable

$

13,723

$

13,552

Accrued liabilities

 

17,092

 

12,540

Operating lease liabilities, current portion

1,200

1,783

Total current liabilities

 

32,015

27,875

Accrued milestones

 

2,250

 

2,100

Operating lease liabilities, long-term portion

1,019

1,851

Other liabilities

733

851

TOTAL LIABILITIES

36,017

32,677

Commitments and contingencies (Note 9)

 

  

 

  

STOCKHOLDERS’ EQUITY

 

  

 

  

Preferred stock, $0.0001 par value, 5,500,000 shares authorized and none issued at September 30, 2022 and December 31, 2021

 

 

Common stock, $0.0001 par value, 100,000,000 shares authorized at September 30, 2022 and December 31, 2021; 43,668,130 and 43,694,716 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively

 

4

 

4

Additional paid in capital

 

540,392

 

519,206

Accumulated other comprehensive income

 

4,702

 

1,371

Accumulated deficit

 

(437,200)

 

(340,475)

TOTAL STOCKHOLDERS’ EQUITY

 

107,898

 

180,106

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$

143,915

$

212,783

The accompanying notes are an integral part of the consolidated financial statements

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Y-MABS THERAPEUTICS, INC.

Consolidated Statements of Net Loss and Comprehensive Loss

(unaudited)

(In thousands, except share and per share data)

Three months ended September 30, 

    

Nine months ended September 30, 

2022

2021

    

2022

2021

REVENUES

Product revenue, net

$

12,537

$

8,965

$

32,820

$

23,299

License revenue

1,000

2,000

Total revenues

12,537

8,965

33,820

25,299

OPERATING COSTS AND EXPENSES

 

 

  

 

  

 

 

Cost of goods sold

2,475

550

5,447

843

License royalties

 

 

 

100

 

210

Research and development

22,453

23,131

71,785

64,488

Selling, general, and administrative

 

13,626

 

13,988

 

50,146

 

39,433

Total operating costs and expenses

 

38,554

 

37,669

 

127,478

 

104,974

Loss from operations

 

(26,017)

 

(28,704)

 

(93,658)

 

(79,675)

OTHER INCOME / (LOSS), NET

 

  

 

  

 

  

 

  

Gain from sale of priority review voucher, net

62,010

Interest and other loss

 

(1,509)

 

(154)

 

(3,067)

 

(717)

NET LOSS

$

(27,526)

$

(28,858)

$

(96,725)

$

(18,382)

Other comprehensive income

 

  

 

  

 

  

 

  

Foreign currency translation

 

1,598

 

238

 

3,331

 

751

COMPREHENSIVE LOSS

$

(25,928)

$

(28,620)

$

(93,394)

$

(17,631)

Net loss per share attributable to common stockholders, basic and diluted

$

(0.63)

$

(0.66)

$

(2.21)

$

(0.43)

Weighted average common shares outstanding, basic and diluted

 

43,718,351

 

43,598,350

 

43,715,451

 

43,019,217

The accompanying notes are an integral part of the consolidated financial statements

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Y-MABS THERAPEUTICS, INC.

Consolidated Statements of Changes in Stockholders’ Equity

(unaudited)

(In thousands, except share data)

Accumulated

Other

Common Stock

Additional

Comprehensive

Accumulated

Stockholders’

    

Shares

    

Amount

    

Paid-in Capital

    

Income / (Loss)

    

Deficit

    

Equity

Balance December 31, 2020

40,688,447

$

4

$

391,558

$

(526)

$

(285,200)

$

105,836

Issuance of common stock to investors, net of issuance costs

2,804,878

107,725

107,725

Exercise of stock options

46,000

110

110

Stock-based compensation expense

9,094

4,698

4,698

Foreign currency translation

435

435

Net loss

33,413

33,413

Balance March 31, 2021

43,548,419

$

4

$

504,091

$

(91)

$

(251,787)

$

252,217

Exercise of stock options

28,332

131

131

Stock-based compensation expense

199

4,827

4,827

Foreign currency translation

78

78

Net loss

(22,937)

(22,937)

Balance June 30, 2021

43,576,950

$

4

$

509,049

$

(13)

$

(274,724)

$

234,316

Exercise of stock options

66,160

248

248

Stock-based compensation expense

806

4,901

4,901

Foreign currency translation

238

238

Net loss

(28,858)

(28,858)

Balance September 30, 2021

43,643,916

$

4

$

514,198

$

225

$

(303,582)

$

210,845

Accumulated

Other

Common Stock

Additional

Comprehensive

Accumulated

Stockholders’

    

Shares

    

Amount

    

Paid-in Capital

    

Income / (Loss)

    

Deficit

    

Equity

Balance December 31, 2021

 

43,694,716

$

4

$

519,206

$

1,371

$

(340,475)

$

180,106

Exercise of stock options

16,000

32

32

Stock-based compensation expense

 

7,449

 

 

5,091

 

 

 

5,091

Foreign currency translation

 

 

 

 

311

 

 

311

Net loss

 

 

 

 

 

(28,068)

 

(28,068)

Balance March 31, 2022

43,718,165

$

4

$

524,329

$

1,682

$

(368,543)

$

157,472

Stock-based compensation expense

1,873

13,633

13,633

Foreign currency translation

1,422

1,422

Net loss

(41,131)

(41,131)

Balance June 30, 2022

43,720,038

$

4

$

537,962

$

3,104

$

(409,674)

$

131,396

Exercise of stock options

4,000

52

52

Stock-based compensation expense

1,979

3,341

3,341

Retirement of treasury shares – refer to Note 10

(57,887)

(963)

(963)

Foreign currency translation

1,598

1,598

Net loss

(27,526)

(27,526)

Balance September 30, 2022

43,668,130

$

4

$

540,392

$

4,702

$

(437,200)

$

107,898

The accompanying notes are an integral part of the consolidated financial statements

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Y-MABS THERAPEUTICS, INC.

Consolidated Statements of Cash Flows

(unaudited)

(In thousands)

Nine months ended September 30, 

2022

2021

CASH FLOWS FROM OPERATING ACTIVITIES

 

  

 

  

 

Net loss

$

(96,725)

$

(18,382)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

  

Gain from sale of priority review voucher, net

(62,010)

Depreciation and amortization

 

609

 

491

Stock-based compensation

 

22,065

 

14,426

Foreign currency and other transactions

 

3,698

 

751

Changes in assets and liabilities:

 

 

Accounts receivable, net

(1,539)

(7,264)

Inventories

(730)

(4,787)

Other current assets

 

2,919

 

4,930

Other assets

 

(2,430)

 

(1,461)

Accounts payable

 

171

 

1,652

Accrued liabilities and other

 

4,702

 

2,961

NET CASH USED IN OPERATING ACTIVITIES

 

(67,260)

 

(68,693)

CASH FLOWS FROM INVESTING ACTIVITIES

 

  

 

  

Purchase of property and equipment

 

 

(512)

Net proceeds from sale of priority review voucher

62,010

NET CASH PROVIDED BY INVESTING ACTIVITIES

 

 

61,498

CASH FLOWS FROM FINANCING ACTIVITIES

 

  

 

  

Proceeds from issuance of common stock, net of issuance costs

107,725

Proceeds from exercised stock options

84

489

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

84

 

108,214

Effect of exchange rates on cash and cash equivalents

 

138

 

77

NET INCREASE / (DECREASE) IN CASH AND CASH EQUIVALENTS

 

(67,038)

 

101,096

Cash and cash equivalents at the beginning of period

 

181,564

 

114,634

Cash and cash equivalents at the end of period

$

114,526

$

215,730

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITIES

 

  

 

  

Intangible assets acquisition in accrued milestones

$

1,500

$

Right-of-use assets obtained in exchange for lease obligations

347

Acquisition of treasury shares upon repayment of secured promissory note – refer to Note 10

963

The accompanying notes are an integral part of the consolidated financial statements

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

NOTE 1—ORGANIZATION AND DESCRIPTION OF BUSINESS

Y-mAbs Therapeutics, Inc. (“we,” “us,” “our,” the “Company,” or “Y-mAbs”) is a commercial-stage biopharmaceutical company focused on the development and commercialization of novel, antibody based therapeutic products for the treatment of cancer. The Company is leveraging its proprietary antibody platforms and deep expertise in the field of antibodies to develop a broad portfolio of innovative medicines and has several ongoing clinical trials in progress.

The Company is headquartered in New York and was incorporated on April 30, 2015 under the laws of the State of Delaware.

NOTE 2—BASIS OF PRESENTATION

Except for the quarter ended March 31, 2021, the Company has incurred losses since inception. Operations of the Company are subject to certain risks and uncertainties, including, among others, uncertainty of drug candidate development; technological uncertainty; uncertainty regarding patents and proprietary rights; uncertainty in obtaining the U.S. Food and Drug Administration (“FDA”) approval in the United States and regulatory approval in other jurisdictions; marketing or sales capability or experience; uncertainty in getting adequate payer coverage and reimbursement; dependence on key personnel; compliance with government regulations and the need to obtain additional financing. The Company’s drug candidates currently under development will require significant additional research and development efforts, including extensive pre-clinical and clinical testing and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance reporting capabilities.

The Company’s drug candidates are in various stages of development. DANYELZA (naxitamab-gqgk) was approved by the FDA in November 2020, but there can be no assurance that the Company’s other research and development efforts will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Company’s product development and commercialization efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid change in technology and substantial competition from pharmaceutical and biotechnology companies.

The Company’s consolidated financial statements have been prepared on the basis of continuity of operations, realization of assets and the satisfaction of liabilities in the ordinary course of business. The Company has experienced negative cash flows from operations since inception, and had an accumulated deficit of $437,200,000 as of September 30, 2022 and $340,475,000 as of December 31, 2021. Through September 30, 2022, the Company has funded its operations primarily through proceeds from sales of shares of its common stock, including its initial public offering in September 2018 and its subsequent public offerings in November 2019 and February 2021, as well as additional funding from the sales of DANYELZA and from the sale of the DANYELZA PRV.

On February 22, 2021, the Company announced the closing of its public offering of 2,804,878 shares of its common stock, at a public offering price of $41.00 per share, which included the exercise in full of the underwriters’ option to purchase 365,853 additional shares of common stock. The aggregate gross proceeds to the Company, before deducting underwriting discounts and commissions and offering expenses payable by the Company, were approximately $115,000,000.

As of September 30, 2022, the Company had cash and cash equivalents of $114,526,000, and as of December 31, 2021 the Company had cash and cash equivalents of $181,564,000. As of the issuance date of the consolidated financial statements for the third quarter ended September 30, 2022, the Company expects that its cash and cash

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equivalents at September 30, 2022 will be sufficient to fund its operating expenses and capital expenditure requirements through at least the next 12 months, irrespective of whether any additional product approvals are obtained.

The Company may raise additional capital to fund future operations through the sale of its securities, incurring debt, entering into licensing or collaboration agreements with partners, grants or other sources of financing. Sufficient funds may not be available to the Company on attractive terms or at all when needed from any such financing. If successful commercialization of DANYELZA and our product candidates for which we may obtain regulatory approvals and marketing authorizations, either directly or with a collaborator or distributor and FDA approval for omburtamab does not occur or is significantly delayed, and the Company is unable to obtain additional financing from these or other sources when needed, it will likely be necessary to take other actions to enhance the Company’s liquidity position which may include significantly reducing the current rate of spending through delaying or scaling back current operations, or suspending certain research and development programs and other operational programs.

The accompanying unaudited consolidated financial statements reflect the accounts of the Company and its wholly owned subsidiaries and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information, Accounting Standards Codification (“ASC”) Topic 270-10 and the instructions to Quarterly Report on Form 10-Q. Accordingly, these consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. The unaudited interim consolidated financial statements include all adjustments (consisting only of normal recurring nature) necessary in the judgment of management for a fair statement of the results for the periods presented. All intercompany balances and transactions have been eliminated. The Company has evaluated subsequent events through the date of this filing. Operating results for the three and nine month periods ended September 30, 2022 are not necessarily indicative of the results that may be expected for the year ended December 31, 2022, any other interim periods, or any future year or period. The December 31, 2021 consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. You should read these unaudited interim consolidated financial statements in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

NOTE 3—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company’s significant accounting policies are detailed in its Annual Report on Form 10-K for the year ended December 31, 2021.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these consolidated financial statements include, but are not limited to, net product revenues, the accrual for research and development expenses, the accrual of milestone and royalty payments, and the valuation of stock options. Estimates are periodically reviewed in light of changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including expenses, manufacturing, clinical trials, research and development costs and employee-related amounts, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and the actions taken to contain or treat COVID-19, as well as the economic impact on local, regional, national and international markets.

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Cash and Cash Equivalents

The Company considers all highly liquid instruments with original maturities of three months or less from date of purchase to be cash equivalents. All cash and cash equivalents are held in highly rated securities including a treasury money market fund, which is unrestricted as to withdrawal or use. To date, the Company has not experienced any losses on its cash and cash equivalents. The carrying amount of cash and cash equivalents approximates its fair value due to its short-term and liquid nature. The Company maintains cash balances in excess of insured limits. The Company monitors the financial performance, credit ratings and liquidity of the money market fund to timely assess and respond to any changes in the asset values of the fund. The Company does not anticipate any losses with respect to such cash balances.

Trade Accounts Receivables

The Company’s trade accounts receivable balance consists of amounts due from sales of its approved product, DANYELZA. Receivables from product sales are recorded net of allowances which generally include chargebacks, doubtful accounts, rebates, returns, and discounts. The allowance is based primarily on assessment of specific identifiable customer accounts considered at risk or uncollectible, as well as an analysis of current receivables aging and expected future write-offs. The Company has not historically experienced any significant credit losses. All customer accounts are actively managed, and no material losses are currently expected.

The Company has not experienced any write-offs related to its customers and has not recognized any allowance for doubtful accounts nor reversed any allowances in the nine months ended September 30, 2022.

Concentration of Credit Risk

The Company’s product sales are made through arrangements primarily with three national specialty distributors in the United States. As of September 30, 2022, the receivables balances from such distributors totaled 99% of the Company’s outstanding accounts receivable. The Company has contractual payment terms with each of its customers and the Company monitors their financial performance, historical payment terms and credit worthiness to timely assess and respond to any changes in their credit profile.

Inventory

The Company values its inventories at the lower of cost or net realizable value on a first-in, first-out basis. The Company’s inventory cost includes amounts related to materials, third party contract manufacturing, third party packaging services, freight, labor costs for personnel involved in the manufacturing process, and indirect overhead costs. Raw and intermediate materials that may be utilized for both commercial and clinical programs are identical and given the alternative future use such amounts are initially classified as inventory. Amounts in inventory associated with clinical development programs are charged to research and development expense when the product enters the research and development process and can no longer be used for commercial purposes and, therefore, does not have an alternative future use.

The Company capitalizes inventory costs related to products to be sold in the ordinary course of business. The Company makes a determination of capitalizing inventory costs for a product based on, among other factors, status of regulatory approval, information regarding safety, efficacy and expectations relating to commercial sales and recoverability of costs. For DANYELZA, the Company commenced capitalization of inventory beginning at the receipt of FDA approval. Prior to FDA approval, the Company expensed such costs as part of research and development expenses.

The Company performs an assessment of the recoverability of capitalized inventory during each reporting period, and writes down any excess and obsolete inventories to their estimated realizable value in the period in which the impairment occurs. Such impairment charges, should they occur, are recorded within cost of goods sold. The determination of whether inventory costs will be realizable requires estimates by management. Other than the $1,200,000 recorded in the three and nine months ended September 30, 2022, as discussed further in NOTE 6—

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INVENTORIES, there were no other material inventory write-downs in the three and nine months ended September 30, 2022.

Fair Value Measurements

Certain assets and liabilities are carried at fair value under GAAP. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e. an exit price). The accounting guidance includes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows:

• Level 1 — Unadjusted quoted prices for identical assets or liabilities in active markets;

• Level 2 — Inputs other than quoted prices in active markets for identical assets and liabilities that are observable either directly or indirectly for substantially the full term of the asset or liability; and

• Level 3 — Unobservable inputs for the asset or liability, which include management's own assumption about the assumptions market participants would use in pricing the asset or liability, including assumptions about risk.

Cash equivalents held in money market funds are valued using other significant observable inputs, which represent a Level 2 measurement within the fair value hierarchy. The Company has no other cash equivalents.

The following tables present the Company’s fair value hierarchy for its cash equivalents, which are measured at fair value on a recurring basis (in thousands):

Fair Value Measurements at September 30, 2022 Using:

    

Level 1

    

Level 2

    

Level 3

    

Total

Cash equivalents:

Money market funds

$

$

105,274

$

$

105,274

Total

$

$

105,274

$

$

105,274

Fair Value Measurements at December 31, 2021 Using:

    

Level 1

    

Level 2

    

Level 3

    

Total

Cash equivalents:

Money market funds

$

$

166,729

$

$

166,729

Total

$

$

166,729

$

$

166,729

During the nine months ended September 30, 2022, there were no transfers between Level 1, Level 2, and Level 3.

Operating Leases

The Company determines if an arrangement includes a lease at inception. Operating lease right-of-use assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent its obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the net present value of lease payments, the Company uses its estimated incremental borrowing rate based on information available at the lease commencement date. Because most of the Company’s leases do not provide an implicit rate of return, an incremental borrowing rate is used based on the information available at the commencement date in determining the present value of lease payments on an individual lease basis. The Company’s incremental borrowing rate for a lease is the estimated rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms.

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The Company’s leases may include options to extend or terminate the lease which are included in the lease term when it is reasonably certain that it will exercise any such options. None of the Company’s leases contain any residual value guarantees. Lease expense is recognized on a straight-line basis over the expected lease term. Related variable lease costs incurred are not material to the Company.

The Company currently elects the short-term lease recognition exemption for all leases that qualify. This means, for those leases that qualify, the Company will not recognize right-of-use assets or liabilities, and this includes not recognizing right-of-use assets or liabilities for existing short-term leases of those assets in transition. The Company also elects the practical expedient to not separate lease and non-lease components for all of its leases. The Company has made an accounting policy election to account for each separate lease component of a contract and its associated non-lease components as a single lease component. See the Lease Agreements section in NOTE 9—LICENSE AGREEMENTS AND COMMITMENTS for the related disclosures.

Revenue Recognition

Product revenue

The Company recognizes revenue from sales of DANYELZA at a point in time when its customer is deemed to have obtained control of the product, which generally occurs upon receipt at the end-user hospital.

The amount of revenue the Company recognizes from sales of DANYELZA varies due to rebates, chargebacks and discounts provided under governmental and other programs, distribution related fees and other sales-related deductions. In order to determine those deductions, the Company estimates, utilizing the expected value method, the amount of revenue that it will ultimately be entitled to. This estimate is based upon contracts with customers and government agencies, statutorily-defined discounts applicable to government-funded programs, estimated payor mix, and other relevant factors. Calculating these amounts involves estimates and judgments, and the Company reviews these estimates quarterly. If actual results vary from its original estimates, the Company will adjust these estimates quarterly, which would affect net product revenue and earnings in the period such variances occur.

Rebates and chargebacks

The Company contracts with United States governmental agencies to enable DANYELZA to be eligible for coverage under the various programs administered by the agencies. The Company estimates the rebates and chargebacks to be provided and deducts these estimated amounts from its gross product revenues. These reserves are recorded in the same period the revenue is recognized, resulting in a reduction of product revenue and the establishment of accrued liabilities for the rebates and a reduction of accounts receivable for the chargebacks. The Company develops estimates for rebates and chargebacks based upon (i) the Company’s contracts with these agencies, (ii) the government-mandated discounts applicable to government-funded programs, and (iii) information obtained from hospitals and third party consultants regarding the payor mix. The Company’s liability for these rebates and chargebacks mainly consists of claims for which invoices have not yet been received and paid. The Company does not maintain material levels of inventory in the wholesale or retail channel.

Discounts and distribution-related fees

The Company provides invoice discounts on DANYELZA sales to its distributors for prompt payment and fees for distribution services and invoice discounts reduce the original accounts receivable balances. The payment terms for sales to distributors generally include a 2% discount for prompt payment or fees for distribution services which are based on contractual rates agreed with the respective distributors. Based on historical data and experiences with the distributors, the Company expects its distributors to earn these discounts and fees and deduct the full amount of these discounts and fees from the Company’s gross product revenue at the time such revenues are recognized.

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Returns

The Company offers its customers limited product return rights for damaged, defective, or expiring products. The Company estimates returns on sales of DANYELZA mainly based on information provided to the Company from the hospitals and distributors. The return reserves are recorded in the same period the related revenue is recognized, resulting in a reduction of product revenue and an establishment of an accrued liability.

License revenue

In May 2021, the Company entered into an exclusive distribution agreement with Adium Pharma S.A. (“Adium”) for Adium to be the exclusive distributor in Latin America of the Company’s antibodies omburtamab, if approved, and DANYELZA. As part of this agreement, the Company received and recognized a non-refundable up-front fee of $2,000,000 for the transfer of the license and know-how related to the product indications during the nine month period ended September 2021. The Company may also receive regulatory-based milestone payments up to an aggregate of $3,000,000. In April 2022, the Company received the first of these milestone payments, a non-refundable fee of $1,000,000 that was payable upon submission by the Company for the updated FDA BLA dossier for DANYELZA. In addition, the Company is entitled to royalties based upon the net sales generated by Adium related to the product in Latin America. The Company considered the license to be distinct from other promises within the arrangement based on the rights and know-how transferred, late-stage development of the underlying indications and anticipated lack of significant involvement required from the joint steering committee associated with the indications. The future potential regulatory milestone amounts were not included in the transaction price, as they were all determined to be fully constrained following the concepts of ASC 606. As part of the Company’s evaluation of the regulatory milestones constraint, the Company determined that the achievement of such milestones are contingent upon regulatory approvals which are not within the Company’s control and therefore not deemed probable. The Company expects that the sales-based milestone payments and royalty arrangements will be recognized when the related sales occur or the milestone is achieved. The Company reevaluates the transaction price each quarter and as uncertain events are resolved or other changes in circumstances occur, the Company assesses whether this resolves the constraint and revenue will be recognized.

Segment Information

The Company is engaged solely in the discovery, development, distribution and commercialization of novel antibody-based therapeutic products for the treatment of cancer. Accordingly, the Company has determined that it operates in one operating segment.

Recently Issued Accounting Pronouncements – Adopted

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board, (“FASB”), and are adopted by the Company as of the specific effective date. The Company adopted ASU 2020-10, ASU 2021-04 and ASU 2020-06 effective January 1, 2022, and the adoption of these new standards did not have a material impact on the Company’s consolidated financial statements or disclosures.

The Company has evaluated accounting pronouncements recently issued but not yet adopted and believes that these pronouncements do not apply to the Company’s operations and therefore will not have a material impact on the Company’s consolidated financial statements or disclosures.

NOTE 4—PRODUCT REVENUE

The Company’s product revenues were generated from sales of DANYELZA and totaled $12,537,000 and $32,820,000 for the three and nine months ended September 30, 2022, and $8,965,000 and $23,299,000 for the three and nine months ended September 30, 2021.

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Revenue from product sales is recorded net of applicable provisions for rebates, chargebacks, discounts, distribution-related fees and other sales-related deductions. Accruals for chargebacks, discounts and distribution-related fees with contractual right of offset are recorded as a direct reduction to accounts receivable. Accruals for rebates, distribution-related fees without contractual right of offset and other sales-related deductions are recorded within accrued liabilities. As of September 30, 2022, the Company had recorded accounts receivable allowances of approximately $734,000 and accrued liabilities of $2,451,000 related to product sales during the nine months ended September 30, 2022. As of December 31, 2021, the Company had recorded accounts receivable allowances of approximately $486,000 and accrued liabilities of $2,615,000 related to product sales.

An analysis of the change in reserves for discounts and allowances is summarized as follows:

    

Contractual

 

    

    

Allowances and

Discounts

Government Rebates

 

Returns

Total

(in thousands)

Balance, December 31, 2021

$

13

$

3,027

$

61

$

3,101

Current provisions relating to sales in current year

65

3,459

379

3,903

Payments/credits relating to sales in current year

(59)

(2,653)

(398)

(3,110)

Change in estimate

(709)

(709)

Balance, September 30, 2022

$

19

$

3,124

$

42

$

3,185

Substantially all of the Company’s product sales were in the United States. The Company had product sales to certain customers that accounted for more than 10% of total gross product revenue for the three and nine months ended September 30, 2022 and September 30, 2021. McKesson and AmerisourceBergen accounted for 78% and 14%, respectively, of the Company’s gross product revenue for the three months ended September 30, 2022. McKesson and AmerisourceBergen accounted for 66% and 24%, respectively, of the Company’s gross product revenue for the three months ended September 30, 2021. McKesson and AmerisourceBergen accounted for 69% and 16%, respectively, of the Company’s gross product revenue for the nine months ended September 30, 2022. McKesson and AmerisourceBergen accounted for 73% and 17%, respectively, of the Company’s gross product revenue for the nine months ended September 30, 2021.

During the quarter and nine months ended September 30, 2022 the Company recorded a change in estimate resulting in a benefit of $709,000 as the Company assessed claims data and reserves for historical earned periods.

NOTE 5—NET LOSS PER SHARE

Basic net loss per share (“EPS”) is calculated by dividing net income or loss attributable to common stockholders by the weighted average common stock outstanding. Diluted EPS is calculated by adjusting weighted average common shares outstanding for the dilutive effect of common stock options and restricted stock units. In periods in which a net loss is recorded, no effect is given to potentially dilutive securities, since the effect would be antidilutive. Securities that could potentially dilute basic EPS in the future were not included in the computation of diluted EPS because to do so would have been antidilutive. The calculations of basic and diluted net loss per share are as follows (in thousands, except per share amounts):

Three months ended September 30, 

Nine months ended September 30, 

    

2022

2021

    

2022

2021

(in thousands, except per share amounts)

Net income /(loss) (numerator)

$

(27,526)

$

(28,858)

$

(96,725)

$

(18,382)

Weighted-average shares (denominator), basic and diluted

 

43,718

 

43,598

 

43,715

 

43,019

Basic net income / (loss) per share

$

(0.63)

$

(0.66)

$

(2.21)

$

(0.43)

Potentially dilutive securities excluded from the computation of diluted earnings per share relate to stock options outstanding and unvested restricted stock units (“RSUs”) totaled 7,119,332 shares as of September 30, 2022 and 5,832,317 shares as of September 30, 2021.

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NOTE 6—INVENTORIES

Inventories consist of the following (in thousands):

    

September 30, 2022

December 31, 2021

Raw Materials

1,500

Work In Progress

8,870

4,741

Finished Goods

1,088

771

Total Inventories

$

11,458

$

5,512

Inventories are classified on the Consolidated Balance Sheets in each respective period (in thousands):

    

September 30, 2022

December 31, 2021

CURRENT ASSETS

Inventories

$

6,242

$

5,512

Total recorded in Current Assets

6,242

5,512

NONCURRENT ASSETS

Other assets

5,216

Total recorded in Noncurrent Assets

5,216

Total Inventories

$

11,458

$

5,512

As of September 30, 2022, the Company has classified $1,500,000 of raw material and $3,716,000 of work in progress inventories as noncurrent assets based on its current demand schedule and expectation that such inventory will be utilized in excess of one year from the balance sheet date. Changes in noncurrent assets are reflected on the consolidated statements of cash flows within the caption of other assets.

During the three and nine months ended September 30, 2022, the Company recorded a $1,200,000 charge in cost of goods sold related to a batch planned for commercial use that did not meet our quality specifications.

NOTE 7—INTANGIBLE ASSETS, NET

The Company’s intangible assets, net as of September 30, 2022 totaled $1,530,000 and related to capitalized milestone payments accrued following FDA approval and commercialization of DANYELZA. The intangible assets net book value as of September 30, 2022 is net of $270,000 of accumulated amortization.

The Company’s intangible assets, net as of December 31, 2021 totaled $1,663,000. The intangible assets net book value as of December 31, 2021 is net of $137,000 of accumulated amortization.

Intangible assets are amortized on a straight-line basis based on a 10-year useful life of the assets. Annual amortization expense is expected to be $180,000 each year for the five-year period from 2022 to 2026.

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NOTE 8—ACCRUED LIABILITIES

Accrued short-term liabilities as of September 30, 2022 and December 31, 2021 are as follows (in thousands):

September 30, 

    

December 31, 

    

2022

2021

Accrued licensing milestone and royalty payments

$

1,593

$

3,090

Accrued clinical costs

 

985

 

915

Accrued compensation and board fees

 

4,073

 

1,877

Accrued manufacturing costs

6,466

2,622

Accrued sales reserves

2,451

2,615

Other

 

1,524

 

1,421

Total

$

17,092

$

12,540

NOTE 9—LICENSE AGREEMENTS AND COMMITMENTS

The Company has entered into two license agreements and certain other agreements with Memorial Sloan Kettering Cancer Center (“MSK”). The license agreements, as previously disclosed in the Company’s Annual Report on Form 10-K, are the MSK License Agreement and the CD33 License Agreement. In addition, the Company entered into the SADA License Agreement with MSK and Massachusetts Institute of Technology (“MIT”) in 2020. Through a 2019 Settlement and Assumption and Assignment Agreement and Y-mAbs Sublicense Agreement (“SAAA”) with MabVax, Inc. (“MabVax”) and MSK, the Company has established a direct license (“MabVax Agreement”) with MSK relating to the GD2-GD3 Vaccine, which was originally sublicensed by the Company in 2018 from MabVax. These license agreements with MSK and MIT grant the Company certain patent rights and intellectual property rights, and in consideration thereof, the Company agreed to make certain payments and issue shares of the Company’s common stock to MSK and MIT. Certain of the payments are contingent milestone and royalty payments, as disclosed in the table below. Amounts disclosed in NOTE 8—ACCRUED LIABILITIES for accrued milestone and royalty payments are inclusive of obligations under the MSK License Agreement, CD33 License Agreement, MabVax Agreement and SADA License Agreement, collectively.

The Company has the following significant license agreements and related commitments which include all obligations that have been paid or accrued as of and for the three and nine months ended September 30, 2022 and 2021, and as of December 31, 2021 (in thousands):

    

    

    

    

    

    

Accrued

    

Accrued

    

Accrued

    

Accrued

Cash paid

    

Cash paid

    

Expense

    

Expense

    

Expense

    

Expense

liabilities

    

liabilities

    

liabilities

    

liabilities

Nine months

Nine months

Three months

Nine months

Three months

Nine months

Current

Non-current

Current

Non-current

ended

ended

ended

ended

ended

ended

as of

as of

as of

as of

September

September

September

September

September

September

September

September

December

December

Agreements

2022

2021

2022

2022

2021

2021

2022

2022