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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2021

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 001-32587

Graphic

ALTIMMUNE, INC.

(Exact Name of Registrant as Specified in its Charter)

    

Delaware

    

20-2726770

(State or Other Jurisdiction of

Incorporation or Organization)

 

(I.R.S. Employer

Identification No.)

910 Clopper Road Suite 201S, Gaithersburg, Maryland

    

20878

(Address of Principal Executive Offices)

 

(Zip Code)

(240) 654-1450

(Registrant’s Telephone Number, Including Area Code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.0001 per share

ALT

The NASDAQ Global 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 Act).   Yes      No  

As of August 6, 2021 there were 39,705,884 shares of the registrant’s common stock, par value $0.0001 per share, outstanding.

Table of Contents

ALTIMMUNE, INC.

TABLE OF CONTENTS

Page

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

1

Consolidated Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020

1

Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2021 and 2020 (unaudited)

2

Consolidated Statements of Changes in Stockholders’ Equity for the three and six months ended June 30, 2021 and 2020 (unaudited)

3

Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 (unaudited)

5

Notes to Consolidated Financial Statements (unaudited)

6

Item 2.

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

17

Item 3.

Quantitative and Qualitative Disclosures about Market Risk

23

Item 4.

Controls and Procedures

23

PART II. OTHER INFORMATION

Item 1.

Legal Proceedings

24

Item 1A.

Risk Factors

24

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

24

Item 3.

Defaults Upon Senior Securities

24

Item 4.

Mine Safety Disclosures

24

Item 5.

Other Information

24

Item 6.

Exhibits

25

Signatures

26

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ALTIMMUNE, INC.

CONSOLIDATED BALANCE SHEETS

    

June 30, 

December 31, 

2021

2020

(unaudited)

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

174,102,382

$

115,917,807

Restricted cash

 

34,174

 

34,174

Total cash, cash equivalents and restricted cash

 

174,136,556

 

115,951,981

Short-term investments

 

43,723,840

 

100,005,558

Accounts receivable

 

4,463,442

 

4,610,202

Tax refund receivable

 

6,887,981

 

7,762,793

Prepaid expenses and other current assets

 

9,413,070

 

1,926,675

Total current assets

 

238,624,889

 

230,257,209

Property and equipment, net

 

4,751,010

 

1,056,920

Intangible assets, net

 

12,956,112

 

12,823,846

Other assets

 

928,839

 

977,238

Total assets

$

257,260,850

$

245,115,213

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

1,421,192

$

612,293

Accrued expenses and other current liabilities

 

7,674,536

 

11,408,154

Total current liabilities

 

9,095,728

 

12,020,447

Contingent consideration

 

5,270,000

 

5,390,000

Other long-term liabilities

 

1,617,150

 

1,828,443

Total liabilities

 

15,982,878

 

19,238,890

Commitments and contingencies (Note 16)

 

  

 

  

Stockholders’ equity:

 

  

 

  

Common stock, $0.0001 par value; 200,000,000 shares authorized; 39,693,524 and 37,142,946 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively

3,956

3,697

Additional paid-in capital

 

482,083,670

 

417,337,742

Accumulated deficit

 

(235,771,414)

 

(186,420,599)

Accumulated other comprehensive loss, net

 

(5,038,240)

 

(5,044,517)

Total stockholders’ equity

 

241,277,972

 

225,876,323

Total liabilities and stockholders’ equity

$

257,260,850

$

245,115,213

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

1

Table of Contents

ALTIMMUNE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(unaudited)

    

For the Three Months Ended

    

For the Six Months Ended

June 30, 

June 30, 

2021

    

2020

2021

    

2020

Revenues

$

137,623

$

721,636

$

975,139

$

2,934,330

Operating expenses:

 

  

 

  

 

  

 

  

Research and development

 

13,272,412

 

16,594,250

 

25,150,312

 

23,781,781

General and administrative

 

3,658,653

 

2,545,356

 

7,480,073

 

4,877,273

Impairment loss on construction-in-progress

 

8,070,000

 

 

8,070,000

 

Total operating expenses

 

25,001,065

 

19,139,606

 

40,700,385

 

28,659,054

Loss from operations

 

(24,863,442)

 

(18,417,970)

 

(39,725,246)

 

(25,724,724)

Other income (expense):

 

  

 

  

 

  

 

  

Interest expense

 

(22,226)

 

(3,308)

 

(33,897)

 

(5,193)

Interest income

 

32,863

 

81,458

 

75,362

 

233,027

Other income (expense), net

 

26,098

 

(5,878)

 

(7,034)

 

19,664

Total other income, net

 

36,735

 

72,272

 

34,431

 

247,498

Net loss before income tax benefit

 

(24,826,707)

 

(18,345,698)

 

(39,690,815)

 

(25,477,226)

Income tax benefit

 

 

1,578,782

 

 

4,824,661

Net loss

 

(24,826,707)

 

(16,766,916)

 

(39,690,815)

 

(20,652,565)

Other comprehensive income (loss) — unrealized gain (loss) on short-term investments

 

1,141

 

20,888

 

6,277

 

(11,547)

Comprehensive loss

$

(24,825,566)

$

(16,746,028)

$

(39,684,538)

$

(20,664,112)

Net loss per share, basic and diluted

$

(0.60)

$

(0.94)

$

(0.99)

$

(1.25)

Weighted-average common shares outstanding, basic and diluted

 

41,356,643

 

17,886,853

 

40,142,561

 

16,498,719

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

2

Table of Contents

ALTIMMUNE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

Accumulated

Additional

Other

Total

    

Common Stock

    

Paid-In

    

Accumulated

    

Comprehensive

    

Stockholders’

Shares

Amount

Capital

Deficit

Loss

Equity

Balance at December 31, 2020

37,142,946

$

3,697

$

417,337,742

$

(186,420,599)

$

(5,044,517)

$

225,876,323

Stock-based compensation

 

 

 

1,218,351

 

 

 

1,218,351

Vesting of restricted stock awards including withholding, net

 

(6,349)

 

1

 

(92,507)

 

 

 

(92,506)

Issuance of common stock from Employee Stock Purchase Plan

8,733

1

106,000

106,001

Retirement of common stock in exchange for common stock warrant

 

(1,000,000)

 

(100)

 

(7,539,900)

 

(9,660,000)

 

 

(17,200,000)

Issuance of common stock warrant in exchange for retirement of common stock

 

 

 

17,200,000

 

 

 

17,200,000

Issuance of common stock in at the market offerings, net

2,110,800

211

34,178,020

34,178,231

Issuance of common stock upon cashless exercise of warrants

 

1,050

 

 

10,000

 

 

 

10,000

Unrealized gain on short-term investments

 

 

 

 

 

5,136

 

5,136

Net loss

 

 

 

 

(14,864,108)

 

 

(14,864,108)

Balance at March 31, 2021

 

38,257,180

 

3,810

 

462,417,706

 

(210,944,707)

 

(5,039,381)

 

246,437,428

Stock based compensation

 

 

 

1,484,829

 

 

 

1,484,829

Exercise of stock options

38,217

 

4

 

94,425

 

 

 

94,429

Vesting of restricted stock awards including withholding, net

 

(7,583)

 

1

 

(91,122)

 

 

 

(91,121)

Issuance of common stock in at the market offerings, net

1,405,710

141

18,177,832

18,177,973

Unrealized gain on short term investments

 

 

 

 

 

1,141

 

1,141

Net loss

 

 

 

 

(24,826,707)

 

 

(24,826,707)

Balance at June 30, 2021

 

39,693,524

 

$

3,956

 

$

482,083,670

 

$

(235,771,414)

 

$

(5,038,240)

 

$

241,277,972

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

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ALTIMMUNE, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited)

Accumulated

Additional

Other

Total

    

Common Stock

    

Paid-In

    

Accumulated

    

Comprehensive

    

Stockholders’

Shares

Amount

Capital

Deficit

Loss

Equity

Balance at December 31, 2019

15,312,167

$

1,508

$

187,914,916

$

(137,376,122)

$

(5,020,156)

$

45,520,146

Stock-based compensation

 

 

 

214,921

 

 

 

214,921

Vesting of restricted stock awards including withholding, net

 

(5,974)

 

1

 

(17,080)

 

 

 

(17,079)

Issuance of common stock from Employee Stock Purchase Plan

 

38,809

 

3

 

56,736

 

 

 

56,739

Issuance of common stock upon exercise of warrants

 

14,500

 

2

 

39,972

 

 

 

39,974

Unrealized loss on short-term investments

 

 

 

 

 

(32,435)

 

(32,435)

Net loss

 

 

 

 

(3,885,649)

 

 

(3,885,649)

Balance at March 31, 2020

 

15,359,502

 

1,514

 

188,209,465

 

(141,261,771)

 

(5,052,591)

 

41,896,617

Stock based compensation

 

 

 

330,510

 

 

 

330,510

Exercise of stock options

13,935

1

36,174

36,175

Vesting of restricted stock awards including withholding, net

 

(5,974)

 

1

 

(46,390)

 

 

 

(46,389)

Issuance of common stock in at the market offerings, net

 

2,965,144

 

297

 

22,780,432

 

 

 

22,780,729

Issuance of common stock upon exercise of warrants

 

8,221,279

 

822

 

31,269,341

 

 

 

31,270,163

Unrealized gain on short term investments

 

 

 

 

 

20,888

 

20,888

Net loss

 

 

 

 

(16,766,916)

 

 

(16,766,916)

Balance at June 30, 2020

 

26,553,886

 

$

2,635

 

$

242,579,532

 

$

(158,028,687)

 

$

(5,031,703)

 

$

79,521,777

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

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ALTIMMUNE, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

    

Six Months Ended June 30, 

2021

2020

CASH FLOWS FROM OPERATING ACTIVITIES:

 

  

 

  

Net loss

$

(39,690,815)

$

(20,652,565)

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

 

  

 

  

Change in fair value of contingent consideration liability

 

(120,000)

 

13,640,000

Impairment loss on construction-in-progress

 

8,070,000

 

Stock-based compensation expense

 

2,703,180

 

545,431

Depreciation and amortization

 

149,388

 

146,045

Unrealized losses (gains) on foreign currency exchange

 

10,108

 

(18,851)

Changes in operating assets and liabilities:

 

  

 

  

Accounts receivable

 

(93,672)

 

(160,920)

Prepaid expenses and other current assets

 

(7,155,593)

 

(343,337)

Accounts payable

 

808,899

 

176,985

Accrued expenses and other liabilities

 

(4,052,095)

 

26,761

Tax refund receivable

 

874,812

 

(4,877,851)

Net cash used in operating activities

 

(38,495,788)

 

(11,518,302)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

  

 

  

Proceeds from sales and maturities of short-term investments

 

63,712,000

 

24,900,000

Purchases of short-term investments

 

(7,424,005)

 

(12,118,563)

Purchases of property and equipment, net

 

(11,900,198)

 

(40,601)

Cash paid for internally developed patents

 

(145,546)

 

(79,336)

Net cash provided by investing activities

 

44,242,251

 

12,661,500

CASH FLOWS FROM FINANCING ACTIVITIES:

 

  

 

  

Payments of deferred offering costs

(118,522)

(179,743)

Proceeds from exercises of warrants

 

 

31,310,137

Proceeds from issuance of common stock in at the market offerings, net

 

52,356,204

 

22,780,729

Proceeds from issuance of notes payable

 

 

632,000

Proceeds from issuance of common stock from Employee Stock Purchase Plan

 

106,001

 

56,739

Proceeds from exercises of stock options

 

94,429

 

36,175

Net cash provided by financing activities

 

52,438,112

 

54,636,037

Net increase in cash and cash equivalents and restricted cash

 

58,184,575

 

55,779,235

Cash, cash equivalents and restricted cash at beginning of period

 

115,951,981

 

8,996,860

Cash, cash equivalents and restricted cash at end of period

$

174,136,556

$

64,776,095

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

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ALTIMMUNE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Nature of Business and Basis of Presentation

Nature of Business

Altimmune, Inc., headquartered in Gaithersburg, Maryland, United States, together with its subsidiaries (collectively, the “Company” or “Altimmune”) is a clinical stage biopharmaceutical company incorporated under the laws of the State of Delaware.

The Company is focused on developing treatments for obesity and liver diseases. The Company’s pipeline includes next generation peptide therapeutics for obesity, NASH (ALT-801) and chronic hepatitis B (HepTcell); proprietary intranasal vaccines; and an intranasal immune modulating therapeutic for the coronavirus disease (“COVID 19”) (T-COVID). Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, and raising capital, and has financed its operations through the issuance of common and preferred stock, long-term debt, and proceeds from research grants and government contracts. The Company has not generated any revenues from the sale of any products to date, and there is no assurance of any future revenues from product sales.

On June 29, 2021, the Company announced the discontinuation of the development program for the COVID-19 vaccine candidate, AdCOVID following the Company’s review of findings from the Phase 1 clinical trial, and in view of the highly competitive COVID-19 landscape. The Company is currently evaluating options for the future development of T-COVID as a result of enrollment challenges due to the effective rollout in the United States of authorized COVID-19 vaccines and decreasing incidence of the disease.

Basis of Presentation

The accompanying unaudited consolidated financial statements are prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, they do not include all of the information and disclosures required by accounting principles generally accepted in the United States (“U.S. GAAP”) for complete consolidated financial statements and should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2020 included in the Annual Report on Form 10-K which was filed with the SEC on February 25, 2021. In the opinion of management, the Company has prepared the accompanying unaudited consolidated financial statements on the same basis as the audited consolidated financial statements, and these consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of the interim periods presented. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year 2021 or any future years or periods.

The accompanying unaudited consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

The accompanying unaudited 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 financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and liabilities that might be necessary should we be unable to continue as a going concern.

2. Summary of Significant Accounting Policies

During the six months ended June 30, 2021, there have been no significant changes to the Company’s summary of significant accounting policies contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 as filed with the SEC, except for the recently adopted accounting standard for income taxes.

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Use of Estimates

The preparation of these financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. The extent to which the COVID-19 pandemic may directly or indirectly impact the Company’s business, financial condition, and results of operations is highly uncertain and subject to change. The Company considered the potential impact of the COVID-19 pandemic on the Company’s estimates and assumptions and determined that there was not a material impact to the Company’s unaudited consolidated financial statements as of and for the three and six months ended June 30, 2021. However, actual results could differ from those estimates and there may be changes to the Company’s estimates in future periods.

Recently Issued Accounting Pronouncements - Adopted

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2019-12, Income Taxes (Topic 740), Simplifying the Accounting for Income Taxes (“ASU No. 2019-12”). ASU 2019-12 amends the approaches and methodologies in accounting for income taxes during interim periods and makes changes to certain income tax classifications. The new standard allows exceptions to the use of the incremental approach for intra-period tax allocation, when there is a loss from continuing operations and income or a gain from other items, and to the general methodology for calculating income taxes in an interim period, when a year-to-date loss exceeds the anticipated loss for the year. The standard also requires franchise or similar taxes partially based on income to be reported as income tax and the effects of enacted changes in tax laws or rates to be included in the annual effective tax rate computation from the date of enactment. Lastly, in any future acquisition, the Company would be required to evaluate when the step-up in the tax basis of goodwill is part of the business combination and when it should be considered a separate transaction. The Company adopted the standard as of January 1, 2021 and has evaluated the effects of this standard and determined that the adoption did not have a material impact on the Company’s consolidated financial statements.

3. Fair Value Measurements

The Company’s assets and liabilities measured at fair value on a recurring basis at June 30, 2021 consisted of the following:

Fair Value Measurement at June 30, 2021

    

Total

    

Level 1

    

Level 2

    

Level 3

Assets:

Cash equivalents - money market funds

$

46,865,390

$

46,865,390

$

$

Short-term investments

 

43,723,840

 

 

43,723,840

 

Total

90,589,230

46,865,390

43,723,840

Liabilities:

Contingent consideration liability (see Note 8)

 

5,270,000

 

 

 

5,270,000

Total

$

5,270,000

$

$

$

5,270,000

The Company’s assets and liabilities measured at fair value on a recurring basis at December 31, 2020 consisted of the following:

Fair Value Measurement at December 31, 2020

    

Total

    

Level 1

    

Level 2

    

Level 3

Assets:

Cash equivalents - money market funds

$

90,389,473

    

$

90,389,473

    

$

    

$

Short-term investments

 

100,005,558

 

 

100,005,558

 

Total

190,395,031

90,389,473

100,005,558

Liabilities:

Contingent consideration liability (see Note 8)

 

5,390,000

 

 

 

5,390,000

Warrant liability

 

10,000

 

 

 

10,000

Total

$

5,400,000

$

$

$

5,400,000

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The warrant liability is included in Other long-term liabilities in the consolidated balance sheet at December 31, 2020. The warrant liability was valued using the Monte Carlo simulation valuation model with Level 3 inputs.

Short-term investments have been initially valued at the transaction price and subsequently valued, at the end of each reporting period, utilizing third party pricing services or other market observable data (Level 2). The pricing services utilize industry standard valuation models, including both income and market-based approaches and observable market inputs to determine value.

Short-term investments had quoted prices at June 30, 2021 as shown below:

June 30, 2021

Unrealized Gain

Amortized Cost

(Loss)

Market Value

United States treasury securities

    

$

8,005,129

    

$

431

    

$

8,005,560

Commercial paper and corporate debt securities

8,599,717

1,290

8,601,007

Asset backed securities

 

2,096,332

 

202

 

2,096,534

Certificate of deposit

 

25,020,739

 

 

25,020,739

Total

$

43,721,917

$

1,923

$

43,723,840

Short-term investments had quoted prices at December 31, 2020 as shown below:

December 31, 2020

Unrealized Gain

Amortized Cost

(Loss)

Market Value

United States treasury securities

    

$

20,052,757

    

$

1,843

    

$

20,054,600

Commercial paper and corporate debt securities

47,521,344

(5,440)

47,515,904

Asset backed securities

 

7,414,619

 

(757)

 

7,413,862

Certificate of deposit

25,021,192

25,021,192

Total

$

100,009,912

$

(4,354)

$

100,005,558

The fair value of contingent payments classified as a liability is based on the regulatory milestones described in Note 8 and estimated using the Monte Carlo simulation valuation model with Level 3 inputs.

The assumptions used to estimate the fair value of contingent payments that are classified as a liability at June 30, 2021 include the following significant unobservable inputs:

Unobservable input

Value or Range

    

Weighted Average

Expected volatility

    

94.6%

94.6%

Risk-free interest rate

 

0.07%

0.07%

Cost of capital

 

30%

30%

Discount for lack of marketability

 

11%‑15%

13%

Probability of payment

 

72%

72%

Projected year of payment

 

2022

 

2022

If applicable, the Company will recognize transfers into and out of levels within the fair value hierarchy at the end of the reporting period in which the actual event or change in circumstance occurs. There were no transfers into and out of any of the levels of the fair value hierarchy as of June 30, 2021 and December 31, 2020.

Separate disclosure is required for assets and liabilities measured at fair value on a recurring basis from those measured at fair value on a non-recurring basis. Assets recorded at fair value on a non-recurring basis, such as property and equipment and intangible assets are recognized at fair value when they are impaired. As of June 30, 2021, the Company recorded a non-cash impairment charge to property and equipment, net on a non-recurring basis (see below). As of December 31, 2020, the Company had no significant assets or liabilities that were measured at fair value on a non-recurring basis.

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Property and Equipment, Net

During the three and six months ended June 30, 2021, the Company recorded a non-cash impairment charge of $8.1 million to property and equipment, net. The fair value of the impaired assets was $3.3 million at June 30, 2021. At June 30, 2021, the fair value of the assets related to construction-in-progress were primarily determined utilizing the cost approach, which determines the current replacement cost of the asset being appraised and then deducts for the loss in value caused by contractual restrictions on the asset, physical deterioration, functional obsolescence, and economic obsolescence the amount required to replace the asset as if new and adjusts to reflect usage. The fair value measurement is considered Level 3 measurements within the valuation hierarchy.

4. Property and Equipment, Net

Property and equipment, net consists of the following:

June 30, 2021

December 31, 2020

Furniture, fixtures and equipment

    

$

190,117

    

$

125,538

Laboratory equipment

 

1,041,749

 

959,585

Computers and telecommunications

 

270,755

 

220,316

Software

 

94,409

 

64,409

Leasehold improvements

 

1,682,538

 

1,285,883

Construction-in-progress

3,300,000

Property and equipment, at cost

 

6,579,568

 

2,655,731

Less: accumulated depreciation and amortization

 

(1,828,558)

 

(1,598,811)

Property and equipment, net

$

4,751,010

$

1,056,920

As of June 30, 2021, construction-in-progress primarily includes costs related to the procurement of long-lead equipment and build out of the suite associated with the Company’s manufacturing collaboration with Lonza Houston, Inc. (“Lonza”) for the manufacture of AdCOVID or other adenovirus-based vaccines. Under the agreement, the Company has committed approximately $23.0 million to Lonza to procure long-lead equipment and construct a dedicated manufacturing suite for clinical and commercial production of adenovirus-based vaccines. This work is expected to be completed by the end of 2021.

In June 2021, the Company announced the discontinuation of further development of AdCOVID following the Company’s review of findings from the Phase 1 clinical trial. Construction continues at Lonza, and the Company is currently assessing its strategic options with respect to the suite. The Company’s current expectation is that, more likely than not, the suite will be disposed of significantly before the end of its previously estimated useful life. As of June 30, 2021, the Company recorded $8.1 million of impairment loss on construction-in-progress in the accompanying unaudited consolidated statements of operations and comprehensive loss, with $3.3 million remaining capitalized in the unaudited consolidated balance sheet, as it represents expected recoveries available to the Company under the construction contract.

Depreciation expense related to property and equipment was approximately $68,450 and $60,664 for the three months ended June 30, 2021 and 2020, respectively, and $136,108 and $120,169 for the six months ended June 30, 2021 and 2020, respectively.

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5. Intangible Assets

The Company’s intangible assets consists of the following:

June 30, 2021

Gross

Estimated

Carrying

Accumulated

Net Book

Useful Lives

Value

Amortization

Value

Internally developed patents

    

620 years

    

$

1,030,333

    

$

(493,188)

    

$

537,145

Acquired licenses

 

1620 years

 

285,000

 

(285,000)

 

Total intangible assets subject to amortization

 

  

 

1,315,333

 

(778,188)

 

537,145

IPR&D assets

 

Indefinite

 

12,418,967

 

 

12,418,967

Total

 

  

$

13,734,300

$

(778,188)

$

12,956,112

December 31, 2020

Gross

Estimated

Carrying

Accumulated

Net Book

    

Useful Lives

    

Value

    

Amortization

    

Value

Internally developed patents

 

610 years

$

884,787

$

(479,908)

$

404,879

Acquired licenses

 

1620 years

 

285,000

 

(285,000)

 

Total intangible assets subject to amortization

 

  

 

1,169,787

 

(764,908)

 

404,879

IPR&D assets

 

Indefinite

 

12,418,967

 

 

12,418,967

Total

 

  

$

13,588,754

$

(764,908)

$

12,823,846

Amortization expense of intangible assets was $6,640 and $12,025 for the three months ended June 30, 2021 and 2020, respectively, and $13,280 and $25,876 for the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, the weighted average amortization period remaining for intangible assets was 12.2 years. Amortization expense was classified as research and development expenses in the accompanying unaudited consolidated statements of operations and comprehensive loss.

6. Operating Leases

The Company rents office and laboratory space in the United States. The Company also leases office equipment under a non-cancellable equipment lease through December 2022. Rent expense during the three and six months ended June 30, 2021 under all of the Company’s operating leases was $123,734 and $253,872, respectively. Rent expense during the three and six months ended June 30, 2020 under all of the Company’s operating leases was $86,295 and $173,894, respectively. Rent expense includes short-term leases and variable lease costs that are not included in the lease obligation.

Short-term leases are leases having a term of twelve months or less. The Company recognizes short-term leases on a straight-line basis and does not record a related lease asset or liability for such leases.

The office space leases provide for increases in future minimum annual rental payments as defined in the lease agreements. The office space lease also includes an option to renew the lease as of the end of the term. The Company has determined that the lease renewal option is not reasonably certain of being exercised.

The cash paid for operating lease liabilities for the three and six months ended June 30, 2021 was $118,843 and $236,197, and for the three and six months ended June 30, 2020 was $96,770 and $192,484, respectively.

Supplemental other information related to the operating leases balance sheet information is as follows:

June 30, 2021

December 31, 2020

 

Operating lease obligations (see Note 7 and 9)

    

$

1,651,217

    

$

1,824,840

Operating lease right-of-use assets (included in "Other assets" in Balance Sheet)

$

827,273

$

903,825

Weighted-average remaining lease term (years)

 

3.8

 

4.3

Weighted-average discount rate

 

7.3

%  

 

7.3

%

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7. Accrued Expenses

Accrued expenses and other current liabilities consist of the following:

June 30, 2021

December 31, 2020

Accrued professional services

    

$

489,836

    

$

1,350,194

Accrued payroll and employee benefits

 

1,661,708

 

2,351,599

Accrued interest

 

16,456

 

13,016

Accrued research and development

 

5,074,045

 

7,316,876

Lease obligation, current portion (see Note 6)

 

374,502

 

356,716

Deferred revenue

 

57,989

 

19,753

Total accrued expenses

$

7,674,536

$

11,408,154

8. Contingent Consideration

The Company entered into an Agreement and Plan of Merger and Reorganization, dated July 8, 2019, by and among the Company, Springfield Merger Sub, Inc., Springfield Merger Sub, LLC, Spitfire Pharma, Inc. and David Collier, as the Stockholder Representative (the “Spitfire Merger Agreement”) to acquire all of the equity interests of Spitfire Pharma, Inc. (“Spitfire”). Spitfire was a privately held, preclinical pharmaceutical company developing a novel dual GLP-1/glucagon receptor agonist for the treatment of non-alcoholic steatohepatitis.

The transaction closed on July 12, 2019. The Company issued 1,887,250 unregistered shares of its common stock (the “shares”) as upfront consideration to certain former securityholders of Spitfire (collectively, the “Spitfire Equityholders”), representing an amount equal to $5.0 million less working capital and transaction expense adjustment amounts as defined in the agreement.

The acquisition of Spitfire was accounted for as an asset acquisition instead of a business combination because substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable asset or group of similar identifiable assets, and therefore, the asset was not considered a business. The Company expensed the acquired intellectual property as of the acquisition date as in-process research and development with no alternative future uses.

The Spitfire Merger Agreement also includes future contingent payments up to $88.0 million in cash and shares of the Company’s common stock as follows (each, a “Milestone Event”):

a one-time payment of $5.0 million (the “IND Milestone Consideration Amount”) within sixty days of the submission of an Investigational New Drug Application (“IND”) to the United States Food and Drug Administration (the “FDA”) or other applicable governmental authority in a foreign jurisdiction, which IND has not been rejected or placed on clinical hold by the FDA or such applicable foreign governmental authority within time specified in the Merger Agreement;
a one-time payment of $3.0 million (the “Phase 2 Milestone Consideration Amount” and together with the IND Milestone Consideration Amount, the “Regulatory Milestones”) within sixty days of the initiation of a Phase 2 clinical trial of a product candidate anywhere in the world; and
payments of up to $80.0 million upon the achievement of specified worldwide net sales (the “Sales Milestones”) of all products developed using the technology acquired in the License Agreement within ten years following the approval of a new drug application filed with the FDA.

The Regulatory Milestones will be payable in shares of the Company’s Common Stock, with the number of shares of the Company’s Common Stock to be issued in connection with each milestone amount, if any, are dependent on the share price at the time of achievement. The number of any shares issued in consideration for the IND Milestone Consideration Amount will be determined based on lower of (A) the average of the closing prices of our Common Stock

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as reported on the Nasdaq Global Market for the twenty (20) consecutive trading days prior to the IND Reference Date or (B) $2.95. The value of any shares issued in consideration for the Phase 2 Milestone Consideration Amount shall be determined based the lower of (A) on the average of the closing trading prices of our Common Stock as reported on the Nasdaq Global Market for the twenty (20) consecutive trading days immediately preceding the date of the occurrence of the Phase 2 Milestone Event or (B) $3.54.

The future contingent payments related to the Regulatory Milestones are stock-based payments accounted for under FASB Accounting Standards Codification Topic 480, Distinguishing Liabilities From Equity (“ASC 480”). Such stock-based payments are subject to a lock-up whereby 50% of the shares are released at 3 months and 50% are released at 6 months. The future contingent payments related to the Sales Milestones are predominately cash-based payments accounted for under FASB Accounting Standards Codification Topic 450, Contingencies. Accordingly, the Company will recognize the Sales Milestones when the contingency is resolved and the amount is paid or payable.

The Company estimates the future contingent consideration for the Regulatory Milestones based upon a Monte Carlo simulation valuation model that is risk adjusted based on the probability of achieving the milestones and a discount for lack of marketability. The Company remeasures the fair value of the contingent consideration at each reporting period. During the fourth quarter of 2020, the Company achieved the IND Milestone and paid the obligation in shares according to the calculation above. Below is a summary of the contingent consideration activity:

Six Months Ended June 30, 

2021

2020

Beginning balance

    

$

5,390,000

    

$

2,750,000

Change in fair value

 

(120,000)

 

13,640,000

Ending balance

$

5,270,000

$

16,390,000

As of June 30, 2021, the decrease in fair value was primarily attributable to a decrease in the closing share price of the Company’s common stock, partially offset by an increase in the probability of milestone achievement. As of June 30, 2020, the increase in fair value was primarily attributable to an increase in the closing share price of the Company’s common stock and in the probability of milestone achievement. Any changes in fair value have been recorded within research and development expense during the respective periods presented.

9. Other Long-Term Liabilities

The Company’s other long-term liabilities are summarized as follows: