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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 September 30, 2019 
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: 001-36065
  
 
ACCELERON PHARMA INC.
(Exact name of registrant as specified in its charter)
Delaware
 
2836
 
27-0072226
(State or other jurisdiction of
incorporation or organization)
 
(Primary Standard Industrial
Classification Code Number)
 
(I.R.S. Employer
Identification Number)
128 Sidney Street
Cambridge, MA 02139
(617649-9200
(Address, including zip code, and telephone number, including
area code, of registrant’s principal executive offices)
  
 
 
Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, $0.001 per share
XLRN
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  x    No  o
 
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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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
x
 
Accelerated filer
o
 
 
 
 
Non-accelerated filer
o 
 
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.            o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes       No  x
 
As of October 31, 2019, there were 53,081,830 shares of the registrant’s Common Stock, par value $0.001 per share, outstanding.


Table of Contents

TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


2

Table of Contents

PART I. FINANCIAL INFORMATION
 
Item 1. Financial Statements
 
Acceleron Pharma Inc. 
Condensed Consolidated Balance Sheets 
(amounts in thousands except share and per share data)
(unaudited)
 
September 30, 2019
 
December 31, 2018
Assets
 
 
 

Current assets:
 
 
 

Cash and cash equivalents
$
169,542

 
$
144,052

Collaboration receivables (all amounts are with a related party)
6,875

 
7,039

Prepaid expenses and other current assets
10,588

 
7,662

Short-term investments
256,529

 
147,260

Total current assets
443,534

 
306,013

Property and equipment, net
6,852

 
7,106

Right-of-use - Operating leases
25,247

 

Restricted cash
1,597

 
1,597

Other assets
219

 
105

Long-term investments
42,218

 

Total assets
$
519,667

 
$
314,821

Liabilities and stockholders’ equity
 
 
 

Current liabilities:
 
 
 

Accounts payable
$
1,854

 
$
419

Accrued expenses
23,825

 
18,209

Operating lease obligations, current portion
5,961

 

Deferred rent

 
284

Total current liabilities
31,640

 
18,912

Operating lease obligations, net of current portion
21,852

 

Deferred rent, net of current portion

 
2,381

Other non-current liabilities
48

 

Warrants to purchase common stock
1,326

 
1,491

Total liabilities
54,866

 
22,784

Commitments and contingencies (Note 14)


 


Stockholders’ equity:
 
 
 

Undesignated preferred stock, $0.001 par value: 25,000,000 shares authorized and no shares issued or outstanding

 

Common stock, $0.001 par value: 175,000,000 shares authorized; 53,027,063 and 46,260,747 shares issued and outstanding at September 30, 2019 and December 31, 2018, respectively
54

 
47

Additional paid-in capital
1,152,449

 
879,099

Accumulated deficit
(687,833
)
 
(586,549
)
  Accumulated other comprehensive income (loss)
131

 
(560
)
Total stockholders’ equity
464,801

 
292,037

Total liabilities and stockholders’ equity
$
519,667

 
$
314,821

 
See accompanying notes to these condensed consolidated financial statements.

3

Table of Contents

Acceleron Pharma Inc.
Condensed Consolidated Statements of Operations and Comprehensive Loss
(amounts in thousands except per share data)
(unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Revenue:
 
 
 

 
 

 
 

Collaboration revenue:
 
 
 

 
 

 
 

Milestone
$

 
$

 
$
25,000

 
$

Cost-sharing, net
4,208

 
3,258

 
9,655

 
10,175

Total revenue (all amounts are with a related party)
4,208

 
3,258

 
34,655

 
10,175

Costs and expenses:
 
 
 

 
 

 
 

Research and development
37,630

 
24,667

 
105,125

 
74,027

General and administrative
15,501

 
8,653

 
40,394

 
23,756

Total costs and expenses
53,131

 
33,320

 
145,519

 
97,783

Loss from operations
(48,923
)
 
(30,062
)
 
(110,864
)
 
(87,608
)
Other income, net
3,520

 
1,071

 
9,523

 
3,481

Loss before income taxes
(45,403
)
 
(28,991
)
 
(101,341
)
 
(84,127
)
Income tax benefit (provision)
34

 
12

 
58

 
(9
)
Net loss
$
(45,369
)
 
$
(28,979
)
 
$
(101,283
)
 
$
(84,136
)
 
 
 
 
 
 
 
 
Net loss per share- basic and diluted
$
(0.86
)
 
$
(0.63
)
 
$
(1.94
)
 
$
(1.84
)
 
 
 
 
 


 


Weighted-average number of common shares used in computing net loss per share- basic and diluted
52,882

 
46,051

 
52,239

 
45,787

 
 
 
 
 
 
 
 
Other comprehensive loss:
 
 
 
 
 
 
 
Net loss
$
(45,369
)
 
$
(28,979
)
 
$
(101,283
)
 
$
(84,136
)
Net unrealized holding (losses) gains on short-term and long-term investments during the period, net of tax
(29
)
 
280

 
691

 
133

Comprehensive loss
$
(45,398
)
 
$
(28,699
)
 
$
(100,592
)
 
$
(84,003
)

 
See accompanying notes to these condensed consolidated financial statements.

4

Table of Contents

Acceleron Pharma Inc. 
Condensed Consolidated Statements of Stockholders' Equity
(amounts in thousands except share and per share data)
(unaudited)

Three and Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
Number of
Shares
 
$0.001 Par
Value
 
Additional
Paid-In Capital
 
Accumulated
Deficit
 
Comprehensive Loss
 
Total
Stockholders'
Equity
Balance at December 31, 2018
46,260,747

 
$
47

 
$
879,099

 
$
(586,549
)
 
$
(560
)
 
$
292,037

Stock-based compensation

 

 
6,992

 

 

 
6,992

Issuance of common stock, net of expense $500
6,151,163

 
6

 
248,124

 

 

 
248,130

Exercise of stock options
35,919

 

 
766

 

 

 
766

Vesting of restricted stock units, net
75,028

 

 
(393
)
 

 

 
(393
)
Issuance of common stock related to ESPP
19,661

 

 
788

 

 

 
788

Unrealized gain on available-for-sale securities, net of tax

 

 

 

 
268

 
268

Net loss

 

 

 
(38,053
)
 

 
(38,053
)
Balance at March 31, 2019
52,542,518

 
53

 
1,135,376

 
(624,602
)
 
(292
)
 
510,535

Stock-based compensation

 

 
5,012

 

 

 
5,012

Exercise of stock options
64,174

 

 
1,760

 

 

 
1,760

Vesting of restricted stock units, net
146,162

 

 

 

 

 

Unrealized gain on available-for-sale securities, net of tax

 

 

 

 
452

 
452

Net loss

 

 

 
(17,862
)
 

 
(17,862
)
Balance at June 30, 2019
52,752,854

 
53

 
1,142,148

 
(642,464
)
 
160

 
499,897

Stock-based compensation

 

 
5,306

 

 

 
5,306

Exercise of stock options
156,394

 
1

 
4,743

 

 

 
4,744

Vesting of restricted stock units, net
104,217

 

 
(252
)
 

 

 
(252
)
Issuance of common stock related to ESPP
13,598

 

 
504

 

 

 
504

Unrealized loss on available-for-sale securities, net of tax

 

 

 

 
(29
)
 
(29
)
Net loss

 

 

 
(45,369
)
 

 
(45,369
)
Balance at September 30, 2019
53,027,063

 
$
54

 
$
1,152,449

 
$
(687,833
)
 
$
131

 
$
464,801





















5

Table of Contents

Three and Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Common Stock
 
 
 
 
 
 
 
 
 
Number of
Shares
 
$0.001 Par
Value
 
Additional
Paid-In Capital
 
Accumulated
Deficit
 
Comprehensive Loss
 
Total
Stockholders'
Equity
Balance at December 31, 2017
45,261,175

 
$
46

 
$
839,090

 
$
(473,024
)
 
$
(895
)
 
$
365,216

Stock-based compensation

 

 
5,696

 

 

 
5,696

Exercise of stock options
358,685

 

 
4,715

 

 

 
4,716

Vesting of restricted stock units, net
65,183

 

 
(363
)
 

 

 
(363
)
Issuance of common stock related to ESPP
19,556

 

 
662

 

 

 
662

Net exercise of warrants to purchase common stock
18,449

 

 
797

 

 

 
797

Unrealized loss on available-for-sale securities

 

 

 

 
(429
)
 
(429
)
Effect of adoption of ASC 606

 

 

 
3,704

 

 
3,704

Net loss

 

 

 
(26,219
)
 

 
(26,219
)
Balance at March 31, 2018
45,723,048

 
46

 
850,597

 
(495,539
)
 
(1,324
)
 
353,780

Stock-based compensation

 

 
5,959

 

 

 
5,959

Exercise of stock options
75,942

 
1

 
2,026

 

 

 
2,027

Vesting of restricted stock units, net
46,061

 

 

 

 

 

Unrealized gain on available-for-sale securities

 

 

 

 
280

 
280

Net loss

 

 

 
(28,938
)
 

 
(28,938
)
Balance at June 30, 2018
45,845,051

 
47

 
858,582

 
(524,477
)
 
(1,044
)
 
333,108

Stock-based compensation

 

 
6,407

 

 

 
6,407

Exercise of stock options
302,329

 

 
8,240

 

 

 
8,240

Vesting of restricted stock units, net
26,539

 

 
(363
)
 

 

 
(363
)
Issuance of common stock related to ESPP
11,340

 

 
421

 
 
 

 
421

Unrealized gain on available-for-sale securities, net of tax

 

 

 

 
280

 
280

Effect of adoption of ASU 2018-07

 

 
(1,641
)
 
1,641

 

 

Net loss

 

 

 
(28,979
)
 

 
(28,979
)
Balance at September 30, 2018
46,185,259

 
$
47

 
$
871,646

 
$
(551,815
)
 
$
(764
)
 
$
319,114


Acceleron Pharma Inc. 
Condensed Consolidated Statements of Cash Flows
(amounts in thousands)
(unaudited)

6

Table of Contents

 
Nine Months Ended September 30,
 
2019
 
2018
Operating Activities
 
 
 

Net loss
$
(101,283
)
 
$
(84,136
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 

Depreciation and amortization
2,932

 
2,868

Stock-based compensation
17,310

 
18,062

Other non-cash items
(75
)
 
1,084

Changes in assets and liabilities:
 
 
 

Prepaid expenses and other assets
(3,731
)
 
(2,626
)
Collaboration receivables (all amounts are with a related party)
164

 
312

Non-cash lease expense
3,804

 

Accounts payable
1,435

 
80

Accrued expenses
5,132

 
(1,863
)
Operating lease obligations (Note 13)
(3,214
)
 

Other changes in operating assets and liabilities
(27
)
 
541

Net cash used in operating activities
(77,553
)
 
(65,678
)
Investing Activities
 
 
 

Purchases of investments
(379,096
)
 
(73,570
)
Proceeds from sales and maturities of investments
228,258

 
138,631

Purchases of property and equipment
(2,166
)
 
(1,901
)
Net cash (used in) provided by investing activities
(153,004
)
 
63,160

Financing Activities
 
 
 

Proceeds from issuance of common stock from public offering, net of issuance costs
248,130

 

Payments for capital lease expenditures

 
(78
)
Net proceeds from exercises and vesting of stock awards, ESPP contributions, and exercise of warrants to purchase common stock
7,917

 
15,338

Net cash provided by financing activities
256,047

 
15,260

Net increase in cash, cash equivalents and restricted cash
25,490

 
12,742

Cash, cash equivalents and restricted cash at beginning of period
145,649

 
101,282

Cash, cash equivalents and restricted cash at end of period
$
171,139

 
$
114,024

 
See accompanying notes to these condensed consolidated financial statements.

7

Table of Contents

Acceleron Pharma Inc. 
Notes to Condensed Consolidated Financial Statements
(unaudited)
 
1. Nature of Business
Acceleron Pharma Inc. (Acceleron or the Company) is a Cambridge, Massachusetts-based clinical stage biopharmaceutical company dedicated to the discovery, development, and commercialization of therapeutics to treat serious and rare diseases. The Company’s leadership in the understanding of TGF-beta biology and protein engineering generates innovative compounds that engage the body’s ability to regulate cellular growth and repair.
The Company is subject to risks common to companies in the biotechnology industry, including, but not limited to, the risk that the Company never achieves profitability, the need for substantial additional financing, the risk of relying on third parties, risks of clinical trial failures, dependence on key personnel, protection of proprietary technology, and compliance with government regulations.
2. Basis of Presentation
The accompanying interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP). Any reference in these notes to applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (ASC) and Accounting Standards Update (ASU) of the Financial Accounting Standards Board (FASB). 
The accompanying interim condensed consolidated financial statements are unaudited and reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the financial statements. As of September 30, 2019, the Company’s significant accounting policies and estimates, which are detailed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, have not changed, and the unaudited interim financial statements have been prepared on the same basis as the audited annual financial statements as of and for the year ended December 31, 2018, except for the adoption of Accounting Standards Updates (ASU) No. 2016-02, Leases (Topic 842), as discussed further in Note 13. In the opinion of management, the accompanying interim condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of September 30, 2019, the results of its operations for the three and nine months ended September 30, 2019 and 2018, and its cash flows for the nine months ended September 30, 2019 and 2018
The results for the three and nine months ended September 30, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, 2019, any other interim periods, or any future year or period. These interim financial statements should be read in conjunction with the audited financial statements as of and for the year ended December 31, 2018, and the notes thereto, together with Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
3. 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 expensed during the reporting period.
Management considers many factors in selecting appropriate financial accounting policies and controls, and in developing the estimates and assumptions that are used in the preparation of these consolidated financial statements. Management must apply significant judgment in this process. In addition, other factors may affect estimates, including: expected business and operational changes, sensitivity and volatility associated with the assumptions used in developing estimates, and whether historical trends are expected to be representative of future trends. The estimation process often may yield a range of potentially reasonable estimates of the ultimate future outcomes and management must select an amount that falls within that range of reasonable estimates. This process may result in actual results differing materially from those estimated amounts used in the preparation of the consolidated financial statements if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made. In preparing these consolidated financial statements, management used significant estimates in the following areas, among others: accrued and prepaid clinical expenses.
4. Segment Information

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Table of Contents

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision making group, in making decisions on how to allocate resources and assess performance. The Company’s chief operating decision maker is the chief executive officer. The Company and the chief executive officer view the Company’s operations and manage its business as one operating segment, which is the discovery, development, and commercialization of highly innovative therapeutics to treat serious and rare diseases.
5. Cash Equivalents and Short-term and Long-term Investments
The Company considers all highly liquid investments purchased with original maturities of 90 days or less at acquisition to be cash equivalents. Cash and cash equivalents include cash held in banks and amounts held in interest-bearing money market accounts. Cash equivalents are carried at cost, which approximates their fair value.
The Company determines the appropriate classification of marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. The Company has classified all of its marketable securities at September 30, 2019 as “available-for-sale” pursuant to ASC 320, Investments – Debt and Equity Securities. The Company records available-for-sale securities at fair value, with the unrealized gains and losses included in accumulated other comprehensive income (loss) in stockholders’ equity. There were no realized gains or losses on marketable securities for the three and nine months ended September 30, 2019 and 2018.
Investments not classified as cash equivalents are presented as either short-term or long-term investments based on both their maturities as well as the time period the Company intends to hold such securities.
The Company adjusts the cost of available-for-sale debt securities for amortization of premiums and accretion of discounts to maturity. The Company includes such amortization and accretion in interest income. The cost of securities sold is based on the specific identification method. The Company includes in interest income interest and dividends on securities classified as available-for-sale.
The Company reviews marketable securities for other-than-temporary impairment whenever the fair value of a marketable security is less than the amortized cost and evidence indicates that a marketable security’s carrying amount is not recoverable within a reasonable period of time. Other-than-temporary impairments of investments are recognized in the consolidated statements of operations if the Company has experienced a credit loss, has the intent to sell the marketable security, or if it is more likely than not that the Company will be required to sell the marketable security before recovery of the amortized cost basis. Evidence considered in this assessment includes reasons for the impairment, compliance with the Company’s investment policy, the severity and the duration of the impairment and changes in value subsequent to the end of the period.
In March 2017, the FASB issued Accounting Standards Update 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities (ASU 2017-08). This standard amends the amortization period for certain purchased callable debt securities held at a premium by shortening the amortization period to the earliest call date. The Company adopted ASU 2017-08 effective January 1, 2019 with no material impact on its consolidated financial statements and related disclosures.
The aggregate fair value of securities held by the Company in an unrealized loss position for less than twelve months as of September 30, 2019 and December 31, 2018 was $59.7 million and $51.2 million, respectively. The aggregate fair value of securities held by the Company in an unrealized loss position for more than twelve months as of September 30, 2019 and December 31, 2018 was $3.0 million and $94.3 million, respectively. The aggregate unrealized loss for those securities in an unrealized loss position for more than twelve months is zero and $0.4 million, respectively. The Company determined it did not hold any investments with any other-than-temporary impairment as of September 30, 2019 and December 31, 2018.

9

Table of Contents

The following is a summary of cash, cash equivalents and available-for-sale securities as of September 30, 2019 and December 31, 2018 (in thousands):
 
September 30, 2019
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Cash and cash equivalents due in 90 days or less
$
169,544

 
$
1

 
$
(3
)
 
$
169,542

Available-for-sale securities:
 
 
 
 
 
 
 
Corporate obligations
142,894

 
331

 
(27
)
 
143,198

U.S. Treasury securities
125,233

 
122

 
(3
)
 
125,352

Certificates of deposit
975

 
4

 

 
979

Mortgage and other asset backed securities
29,223

 
7

 
(12
)
 
29,218

Total available-for-sale securities
$
298,325

 
$
464

 
$
(42
)
 
$
298,747

Total cash, cash equivalents and available-for-sale securities
$
467,869

 
$
465

 
$
(45
)
 
$
468,289

 
December 31, 2018
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Cash and cash equivalents due in 90 days or less
$
144,064

 
$

 
$
(12
)
 
$
144,052

Available-for-sale securities:
 
 
 
 
 
 
 
Corporate obligations due in one year or less
73,671

 

 
(267
)
 
73,404

U.S. Treasury securities due in one year or less
45,346

 

 
(79
)
 
45,267

Certificates of deposit due in one year or less
1,715

 

 

 
1,715

Mortgage and other asset backed securities due in one year or less
26,982

 

 
(108
)
 
26,874

Total available-for-sale securities
$
147,714

 
$

 
$
(454
)
 
$
147,260

Total cash, cash equivalents and available-for-sale securities
$
291,778

 
$

 
$
(466
)
 
$
291,312


6. Restricted Cash
The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the condensed consolidated balance sheet that sum to the total of the same such amounts shown in the statements of cash flows (in thousands):
 
September 30,
 
2019
 
2018
Cash and cash equivalents
$
169,542

 
$
112,427

Restricted cash
1,597

 
1,597

Total cash, cash equivalents and restricted cash shown in the statement of cash flows
$
171,139

 
$
114,024


As of September 30, 2019 and December 31, 2018, the Company maintained letters of credit totaling $1.6 million held in the form of certificates of deposit and money market funds as collateral for the Company's facility lease obligation and its credit cards.
7. Concentrations of Credit Risk and Off-Balance Sheet Risk
The Company has no off-balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially subject the Company to concentrations of credit risk are primarily cash, cash equivalents, restricted cash, short-term and long-term investments, and receivables. The Company maintains its cash and cash equivalent balances and short-term and long-term investments with financial institutions that management believes are creditworthy. Short-term and long-term investments consist of investment grade corporate obligations, treasury notes, asset backed securities, and certificates of deposit. The Company’s investment policy includes guidelines on the quality of the institutions and financial instruments and defines allowable investments that the Company believes minimizes the exposure to concentrations of credit risk.
The Company routinely assesses the creditworthiness of its collaboration partner. The Company has not experienced any material losses related to receivables from individual customers and collaboration partners, or groups of customers. The

10

Table of Contents

Company does not require collateral. Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable in the Company’s collaboration receivables.
8. Fair Value Measurements
The following tables set forth the Company’s financial instruments carried at fair value using the lowest level of input that is significant to each financial instrument as of September 30, 2019 and December 31, 2018 (in thousands):
 
September 30, 2019
 
Quoted Prices
in Active Markets
for Identical Items
(Level 1)
 
Significant Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Assets:
 

 
 

 
 

 
 

Money market funds
$
104,336

 
$

 
$

 
$
104,336

Corporate obligations

 
176,662

 

 
176,662

U.S. Treasury securities

 
145,337

 

 
145,337

Certificates of deposit

 
1,219

 

 
1,219

Mortgage and other asset backed securities

 
29,218

 

 
29,218

Total assets
$
104,336

 
$
352,436

 
$

 
$
456,772

Liabilities:
 

 
 

 
 

 
 

Warrants to purchase common stock
$

 
$

 
$
1,326

 
$
1,326

Total liabilities
$

 
$

 
$
1,326

 
$
1,326

 
 
December 31, 2018
 
Quoted Prices
in Active Markets
for Identical Items
(Level 1)
 
Significant other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
 
Total
Assets:
 

 
 

 
 

 
 

Money market funds
$
74,023

 
$

 
$

 
$
74,023

Corporate obligations

 
128,920

 

 
128,920

U.S. Treasury securities

 
56,978

 

 
56,978

Certificates of deposit

 
1,715

 

 
1,715

Mortgage and other asset backed securities

 
26,874

 

 
26,874

Total assets
$
74,023

 
$
214,487

 
$

 
$
288,510

Liabilities:
 

 
 

 
 

 
 

Warrants to purchase common stock
$

 
$

 
$
1,491

 
$
1,491

Total liabilities
$

 
$

 
$
1,491

 
$
1,491


The money market funds noted above are included in cash and cash equivalents in the accompanying condensed consolidated balance sheets. The Company recognizes transfers between levels of the fair value hierarchy as of the end of the reporting period. There were no transfers within the hierarchy during the nine months ended September 30, 2019 or the year ended December 31, 2018.
Items measured at fair value on a recurring basis include short-term and long-term investments (Note 5), and warrants to purchase common stock (Note 12). During the periods presented, the Company has not changed the manner in which it values assets and liabilities that are measured at fair value using Level 3 inputs.
The following table sets forth a summary of changes in the fair value of the Company’s common stock warrant liabilities, which represent a recurring measurement that is classified within Level 3 of the fair value hierarchy, wherein fair value is estimated using significant unobservable inputs (in thousands):

11

Table of Contents

 
Nine Months Ended September 30,
 
2019
 
2018
Beginning balance
$
1,491

 
$
2,236

Change in fair value
(165
)
 
592

Exercises

 
(797
)
Ending balance
$
1,326

 
$
2,031


The fair value of the warrants to purchase common stock on the date of issuance and on each re-measurement date for those warrants classified as liabilities was estimated using either the Monte Carlo simulation framework, which incorporates future financing events over the remaining life of the warrants to purchase common stock, or for certain re-measurement dates, due to the warrants being deeply in the money, the Black-Scholes option pricing model. Due to the nature of these inputs, the valuation of the warrants is considered a Level 3 measurement. At each reporting period, the Company evaluates the best valuation methodology. At September 30, 2019, the Black-Scholes option pricing model was used.
The Company measures eligible assets and liabilities at fair value, with changes in value recognized in earnings. Fair value treatment may be elected either upon initial recognition of an eligible asset or liability or, for an existing asset or liability, if an event triggers a new basis of accounting. The Company did not elect to re-measure any of its existing financial assets or liabilities, and did not elect the fair value option for any financial assets and liabilities transacted in the nine months ended September 30, 2019 or the year ended December 31, 2018.
9. Net Loss Per Share
The following common stock equivalents were excluded from the calculation of diluted net loss per share for the periods indicated because their inclusion would have had an anti-dilutive effect (in thousands):
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2019
 
2018
 
2019
 
2018
Outstanding stock options
3,920

 
3,519

 
3,920

 
3,519

Common stock warrants
39

 
39

 
39

 
39

Shares issuable under employee stock purchase plan
23

 
18

 
23

 
18

Outstanding restricted stock units (1)
366

 
648

 
366

 
648

 
4,348

 
4,224

 
4,348

 
4,224


(1)
This balance is comprised of both the restricted stock units and performance-based restricted stock units described in Note 17.

10. Comprehensive Loss 
Comprehensive loss is defined as the change in equity of a business enterprise during a period from transactions, other events, and circumstances from non-owner sources. Comprehensive loss consists of net loss and other comprehensive loss, which includes certain changes in equity that are excluded from net loss. Comprehensive loss has been disclosed in the accompanying consolidated statements of operations and comprehensive loss. Accumulated other comprehensive loss is presented separately on the consolidated balance sheets and consists entirely of unrealized holding gains and losses on investments as of September 30, 2019 and December 31, 2018.
11. Recent Accounting Pronouncements - Not Yet Adopted
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses. The new standard requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts. ASU 2016-13 will become effective for the Company for fiscal years beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the impact ASU 2016-13 will have on its consolidated financial statements and related disclosures.

12. Warrants

12

Table of Contents

Below is a summary of the number of shares issuable upon exercise of outstanding warrants and the terms and accounting treatment for the outstanding warrants (in thousands, except per share data):
 
Warrants as of
 
 
 
 
 
 
 
 
 
 
 
 
 
Weighted-
Average
Exercise
 
 
 
Balance Sheet
Classification
 
September 30, 2019
 
December 31, 2018
 
Price Per
Share
 
Expiration
 
September 30, 2019
 
December 31, 2018
Warrants to purchase common stock
39

 
39

 
$
5.88

 
June 10, 2020 - July 9, 2020
 
Liability
 
Liability


13. Leases

In February 2016, the FASB issued Accounting Standards Codification Topic 842, Leases (ASC 842), which replaces the existing guidance for leases. ASC 842 requires lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. ASC 842 also requires certain qualitative and quantitative disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases.

The Company adopted ASC 842 effective January 1, 2019. The Company elected to employ the transitionary relief recently offered by the FASB under ASU 2018-11 and implemented the new standard without the restatement of comparative periods' financial information. ASU-2018-11 also provides for recognizing the effects of applying ASC 842 as a cumulative-effect adjustment to retained earnings as of January 1, 2019; however, no such adjustment was recorded as of January 1, 2019.

The Company elected to employ the package of practical expedients offered under ASC 842, which allowed the Company to not reassess the following:

the presence of a lease in any expired or existing contracts;
the lease classification for any existing or expired leases; and
the initial direct costs for any existing leases.

The Company currently leases approximately 125,000 square feet of office and laboratory space in five adjacent buildings in Cambridge, Massachusetts (the Leases). The Leases were classified as operating leases under ASC 840. The Leases are also classified as operating leases under ASC 842 in accordance with the Company's election of the practical expedient under ASC 842. Pursuant to the package of practical expedients, the Company also did not reassess initial direct costs for the Leases. Additionally, the Company elected to account for the lease components and non-lease components as a single lease component.

The Company occupied the premises of the Leases at various points in time prior to January 1, 2019 under non-cancelable agreements which expire at various dates through September 2023. Each of the Leases have options to renew for periods ranging from three to five years, which are not included in the measurement of these leases. All of the Company's leases contain escalating rent clauses, which require higher rent payments in future years. There are no variable payments, exercise purchase options, penalties, fees, or residual value guarantees under the Leases. The Company is also obligated to pay the Landlord for certain costs, taxes, and operating expenses related to the premises. However, the Company has concluded that these payments are not in-substance fixed payments and therefore are not included in the calculation of the related lease liability and asset under ASC 842.

The Company recorded the liability associated with the Leases at the present value of the lease payments not yet paid, discounted using the discount rate for the Leases established at the adoption date. As the discount rate implicit in the Leases was typically not readily determinable, the Company utilized its incremental borrowing rate (IBR). In transition to ASC 842, the Company utilized the remaining lease term of its leases in determining the appropriate incremental borrowing rates.

The IBR for the Leases was determined by establishing a credit rating of the Company using the Ordered Logit (oLogit) model. The oLogit Model is a quantitative method to assess the credit rating of a company. Based on the established credit rating, the Company determined a borrowing rate using regression analysis on selected financial ratios of publicly traded comparable companies and the companies' credit ratings, adjusted for the risk-free rate, which resulted in an IBR of approximately 10%.

The Company recorded the liability associated with the Leases at the present value of the lease payments not yet paid, discounted using the incremental borrowing rate for each lease established at the adoption date. On January 1, 2019, the

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Company recorded a right-of-use asset in the amount of $29.1 million, which represented a lease liability of $31.0 million, adjusted for previously recognized lease-related balances, including deferred rent of $2.7 million and prepaid rent of $0.7 million. This lease liability will be reduced over the remaining lease term based on cash payments made offset by accretion of monthly interest calculated on the lease liability. The right-of-use asset will be amortized over the remaining lease term in an amount equal to the difference between the calculated straight-line expense of the total lease payments less the monthly interest calculated on the remaining lease liability.

The Company recognizes rent expense, calculated as the remaining cost of the lease allocated over the remaining lease term on a straight-line basis. Rent expense is presented as part of continuing operations in the condensed consolidated statement of operations and comprehensive loss. For the three and nine months ended September 30, 2019, the Company recognized rent expense of $2.0 million and $6.1 million, respectively.

For the three and nine months ended September 30, 2019, the Company paid $2.1 million and $6.2 million, respectively, in rent relating to the Leases. As payments resulting from an operating lease, the $6.2 million is classified within operating activities in the condensed consolidated statements of cash flows.

The following table contains supplemental balance sheet information pertaining to the Company's leases as of September 30, 2019:
 
As of September 30,
 
2019
Weighted average remaining lease term
3.9 years

Weighted average discount rate
10.59
%


Future minimum lease payments under the Company's non-cancelable operating leases as of September 30, 2019 are as follows, (in thousands):
 
As of September 30,
 
2019
2019
$
2,133

2020
8,610

2021
8,336

2022
8,409

2023
6,450

Total Lease Payments
$
33,938

Less: imputed interest
(6,125
)
Total operating lease liabilities
$
27,813


14. Commitments and Contingencies
Legal Proceedings
The Company, from time to time, may be party to litigation arising in the ordinary course of its business. The Company was not subject to any material legal proceedings during the three months ended September 30, 2019, and, to the best of its knowledge, no material legal proceedings are currently pending or threatened.
Other
The Company is also party to various agreements, principally relating to licensed technology, that require future payments relating to milestones not met at September 30, 2019 and December 31, 2018, or royalties on future sales of specified products. No milestones or royalty payments under these agreements are expected to be payable in the immediate future. See Note 15 for discussion of these arrangements. 
The Company enters into standard indemnification agreements in the ordinary course of business. Pursuant to the agreements, the Company indemnifies, holds harmless, and agrees to reimburse the indemnified party for losses suffered or incurred by the indemnified party, generally the Company’s business partners or customers, in connection with any U.S. patent or any copyright or other intellectual property infringement claim by any third party with respect to the Company’s products. The term of these indemnification agreements is generally perpetual any time after execution of the agreement. The maximum

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potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited. The Company has never incurred costs to defend lawsuits or settle claims related to these indemnification agreements.
15. Significant Agreements
Celgene
Overview
On February 20, 2008, the Company entered into an agreement with Celgene relating to sotatercept (the Original Sotatercept Agreement), which was amended on August 2, 2011 (as amended, the Amended Sotatercept Agreement). The Company further amended and restated the Original Sotatercept Agreement in its entirety on September 18, 2017 (the Restated Sotatercept Agreement). On August 2, 2011, the Company entered into a second agreement with Celgene for luspatercept (the Luspatercept Agreement).
Since December 31, 2018, there have been no material changes to the key terms of the above agreements. For further information on the terms of the agreements, please see the notes to the consolidated financial statements included in the Company’s Form 10-K for the year ended December 31, 2018.
Accounting Analysis

As of the ASC 606 adoption date, the only remaining undelivered element was participation in the Joint Development Committee (JDC). The transaction price allocated to participation in the JDC based on the established standalone selling price of all performance obligations was de minimis as the sotatercept and luspatercept licenses carried the most significant portion of the value included in the agreements, and the Company's remaining effort on the JDC is minimal. Therefore, the Company recorded a cumulative-effect reduction to opening accumulated deficit of $3.7 million as the adoption date and a corresponding decrease to deferred revenue, of which $0.5 million was recorded to current deferred revenue and $3.2 million was recorded to long-term deferred revenue. 

On June 4, 2019, the Company and Celgene announced that the U.S. Food and Drug Administration (FDA) accepted Celgene's Biologics License Application (BLA), and the European Medicines Agency (EMA) validated Celgene’s Marketing Authorization Application (MAA), for luspatercept for both myelodysplastic syndromes and beta-thalassemia. As a result, the $25.0 million milestone for acceptance of the BLA by the FDA or MAA by the EMA for use of a Licensed Product was no longer constrained. As the Company did not have any remaining performance obligations under the agreement with Celgene, the full $25.0 million was recognized as revenue during the three months ended June 30, 2019.

The FDA has granted Priority Review to the BLA for the evaluation of the beta-thalassemia indication and set a Prescription Drug User Fee Act (PDUFA), or target action, date of December 4, 2019. The FDA has also set a PDUFA date of April 4, 2020 for the evaluation of the MDS indication. As of September 30, 2019, the next likely milestone payment for luspatercept would be $35.0 million and result from FDA approval of the BLA for luspatercept in beta-thalassemia, which could occur as early as the fourth quarter of 2019 and would result in the recognition of the milestone during that period. As of September 30, 2019, the approval of the application was not within the control of the Company or the licensee, and therefore, the Company could not conclude that it was probable that a regulatory agency would approve the application.
Through September 30, 2019, under all Celgene arrangements the Company has received net cost-share payments and milestones of $144.3 million and $44.6 million for luspatercept and sotatercept, respectively. The Company recorded net cost-sharing revenue of $4.2 million and $3.3 million during the three months ended September 30, 2019 and 2018, respectively, and $9.7 million and $10.2 million during the nine months ended September 30, 2019 and 2018, respectively.
Other Agreements
In 2004, the Company entered into a license agreement with a non-profit institution for an exclusive, sublicensable, worldwide, royalty-bearing license to certain patents developed by the institution (Primary Licensed Products). In addition, the Company was granted a non-exclusive, non-sub-licensable license for Secondary Licensed Products. As compensation for the licenses, the Company issued 62,500 shares of its common stock to the institution, the fair value of which was $25,000, and was expensed during 2004 to research and development expense. The Company also agreed to pay specified development milestone payments totaling up to $2.0 million for sotatercept and $0.7 million for luspatercept. In addition, the Company is obligated to pay milestone fees based on the Company’s research and development progress, and U.S. sublicensing revenue ranging from 10%-25%, as well as royalties ranging from 1.0%-3.5% of net sales on any products under the licenses. During the three months ended September 30, 2019 and 2018, the Company expensed zero and zero, respectively, and during the nine

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months ended September 30, 2019 and 2018, the Company expensed $1.6 million and $0.1 million, respectively, of milestones and fees defined under this agreement.
In May 2014, the Company executed a collaboration agreement with a research technology company, and such collaboration agreement was amended and restated in March 2019. The Company paid an upfront research fee of $0.3 million upon execution of the original agreement. The Company also received an option to obtain a commercial license to the molecules developed during the collaboration. During the three months ended September 30, 2019 and 2018, the Company expensed $0.1 million and zero, respectively, and during the nine months ended September 30, 2019 and 2018, the Company expensed $2.1 million and zero, respectively, of milestones and fees defined under the agreement.
16. Stockholders' Equity

On January 18, 2019, the Company completed the sale of its underwritten public offering of 5,348,838 shares of common stock at public offering price of $43.00 per share, resulting in net proceeds of $215.8 million. In connection with the January 2019 public offering, on February 12, 2019, the underwriters fully exercised their over-allotment option to purchase an additional 802,325 shares of the Company's common stock. The total net proceeds from the January 2019 public offering and the underwriters' exercise of their option to purchase additional shares of common stock was $248.2 million.

17. Stock-Based Compensation
The Company recognized stock-based compensation expense related to the 2003 Stock Option and Restricted Stock Plan (the 2003 Plan), the 2013 Equity Incentive Plan (the 2013 Plan), and the 2013 Employee Stock Purchase Plan (the 2013 ESPP) in the consolidated statements of operations and comprehensive loss during the three and nine months ended September 30, 2019 and 2018, respectively, as follows (in thousands):
 
Three Months Ended 
 September 30,
 
Nine Months Ended 
 September 30,
 
2019
 
2018
 
2019
 
2018
Research and development
$
2,107

 
$
3,346

 
$
7,610

 
$
9,264

General and administrative
3,199

 
3,061

 
9,700

 
8,798

 
$
5,306

 
$
6,407

 
$
17,310