Annual report pursuant to Section 13 and 15(d)

Commitments and Contingencies

v3.20.1
Commitments and Contingencies
12 Months Ended
Dec. 31, 2019
Commitments and Contingencies Disclosure [Abstract]  
Commitments and Contingencies
8. Commitments and Contingencies
Operating Leases
As described further in Note 2, “Summary of Significant Accounting Policies”, the Company adopted Topic 842 as of January 1, 2019. Prior period amounts have not been adjusted and continue to be reported in accordance with the Company’s historic accounting under Topic 840.
In December 2010, the Company entered into a
non-cancellable
operating lease for office space and laboratory facilities in Yonkers, New York expiring in December 2025. In December 2011, the Company entered into an amendment which extended the term of the lease through December 2027 (the “Third Floor Lease”). The lease provides for the option to renew for two additional five-year terms. The premises were occupied in June 2011. Monthly rent payments began the date the office and laboratory facilities were ready for occupancy.
 
In January 2012, the Company entered into a
non-cancellable
operating lease for additional office space and laboratory facilities in the same building in Yonkers, New York expiring in December 2027 (the “Fourth Floor Lease”). The Fourth Floor Lease provides for an option to renew for two additional five-year terms. Effective August 1, 2017, the Company relinquished 10,912 square feet of space under the Fourth Floor Lease and was relieved of its obligations related to such space.
The Company performed an evaluation of its other contracts in accordance with Topic 842 and has determined that, except for the leases described above, none of its contracts contain a lease.
The balance sheet classification of the Company’s lease liabilities was as follows:
 
Description
  
December 31,
2019
    
December 31,
2018
 
Operating lease liabilities:
     
Current portion of lease liabilities
   $ 631,889      $ —    
Long-term portion of lease liabilities
   $ 3,264,128      $ —    
Operating lease liabilities are based on the net present value of the remaining lease payments over the remaining lease term. The leases are renewable at the end of the lease term at the Company’s option. For the purposes of determining the remaining lease term in contemplation of available extensions, the Company did not consider either renewal to be probable at this time. In determining the present value of lease payments, the Company estimated its incremental borrowing rate based on the information available at the adoption date of Topic 842. As of January 1, 2019, the remaining lease term was 9.0 years and the discount rate used to determine the operating lease liability was 9.93%.
As of December 31, 2019, the maturities of the Company’s operating lease liabilities were as follows:
 
    
Amount
 
Year ending December 31:
  
2020
   $ 666,391  
2021
     679,719  
2022
     693,313  
2023
     707,179  
2024
     721,323  
Thereafter
     2,251,688  
  
 
 
 
Total lease payments
     5,719,613  
Less: Present value adjustment
     (1,823,596
  
 
 
 
Operating lease liabilities
   $ 3,896,017  
  
 
 
 
Lease costs under the terms of the Company’s leases for the year ended December 31, 2019 are as follows:
 
 
  
Year Ended
December 31, 2019
 
Operating lease cost (1)
  
$
616,653
 
Variable lease cost (2)
  
 
98,909
 
 
  
 
 
 
Total lease cost
  
$
715,562
 
 
  
 
 
 
 
(1)
Operating lease payments included in the measurement of the Company’s lease liabilities are comprised of fixed payments according to the terms of the Company’s leases.
(2)
Variable lease payments consist of the Company’s utility costs billed by and paid to its landlord. Variable lease payments are presented as operating expenses in the Company’s Consolidated Statement of Operations in the same line item as expense arising from fixed lease payments and in net cash used in operating activities in the Company’s Statement of Cash Flows.
Rent expense is recognized using the straight-line method over the term of each lease. Rent expense for the years ended December 31, 2018 and 2017, was approximately $618,000 and $587,000, respectively.
Rockefeller University
License Agreements
The Company has entered into the following license agreements with The Rockefeller University:
 
   
On July 12, 2011, the Company entered into a license agreement for the worldwide, exclusive right to a patent covering the composition of matter for the lysin PlySS2 for the treatment and prevention of diseases caused by gram-positive bacteria (the
“CF-301
License”). The Company rebranded PlySS2 as
CF-301
and subsequently, exebacase. The license gives the Company the right to exclusively develop, make, have made, use, import, lease, sell and offer for sale products that would otherwise infringe a claim of this patent application or patent.
 
   
On June 1, 2011, the Company entered into a license agreement for the exclusive rights to The Rockefeller University’s interest in a joint patent application covering the method of delivering antibodies through the cell wall of gram-positive bacteria to the periplasmic space. This intellectual property was developed as a result of the sponsored research agreement between the Company and The Rockefeller University, and was jointly discovered and filed by the two parties.
 
   
On September 23, 2010, the Company entered into a license agreement for the worldwide, exclusive right to develop, make, have made, use, import, lease, sell, and offer for sale products that would otherwise infringe a claim of the suite of patents and patent applications covering the composition of matter for eight individual lysin molecules for the treatment and prevention of diseases caused by gram-positive bacteria. The lysins in this suite have activity against Group B
Streptococci
,
Staphylococcus aureus, Streptococcus pneumonia, Bacillus anthracis, Enterococcus faecalis and Enterococcus faecium
.
In consideration for the licenses, we paid Rockefeller license initiation fees in cash and stock and are required to pay annual maintenance fees of $200,000 in 2019 and each year thereafter until the licenses terminate, milestone payments and royalties of up to 5% on net sales from products to Rockefeller. The Company made a milestone payment under the
CF-301
License of $430,000
during
the
year ended December 31,
 2019 for the completion of the Phase 2 trial.
There were no milestone, royalty or sublicense payments made during the years ended December 31, 2018 and 2017.
We are allowed to grant sublicenses to third parties without prior approval, subject to certain conditions and the payment of a certain percentage of all payments we receive from sublicensees.
Each license agreement terminates upon the later of (i) the expiration or abandonment of the last licensed patent under the license agreement to expire or become abandoned, or (ii) 10 years after the first commercial sale of the first licensed product. The Rockefeller University may terminate any license agreement in the event of a breach of such agreement by the Company or if the Company challenges the validity or enforceability of the underlying patent rights. The Company may terminate any license agreement at any time on 60 days’ notice.
Collaborative Research Agreements
Beginning in October 2009, we entered into a research agreement with Rockefeller where we provided funding for the research. The initial agreement focused on producing and testing monoclonal antibodies against proteins of
Staph aureus
. On October 24, 2011, we entered into a second research agreement with Rockefeller where we provide funding for the research, to identify lysins, enzymes or small molecules that will kill gram-negative bacteria, and identify and characterize lysins from
Clostridia difficile
to be engineered into gut commensal bacteria. On October 25, 2016, we entered into a third research agreement with Rockefeller, where we provide funding for the identification of novel lysin therapeutic candidates which target gram-negative pathogens. The research collaboration will focus on gram-negative pathogens such as
P. aeruginosa, E. coli,
and
K. pneumoniae
, including antibiotic-resistant strains. Th
e
 agreement
s
expired on October 24, 2019. Following the expiration of the agreement
s
, each party
has
a
non-exclusive
license to use for internal research purposes all research results, including joint intellectual property. If Rockefeller or joint intellectual property develops from these programs, we will have the
right-of-first
refusal to negotiate to acquire a royalty-bearing license to utilize such intellectual property for commercial purposes.
Separation Agreement
s
On April 1, 2019, Steven C. Gilman notified the Company of his resignation as President, Chief Executive Officer and Chairman of the board of directors, effective as of April 2, 2019. In connection with his resignation, Dr. Gilman entered into a separation agreement with the Company pursuant to which Dr. Gilman will receive (i) an amount in cash equal to 25% of the annual bonus that Dr. Gilman would have earned for the 2019 calendar year had he remained continuously employed, as determined by the board based on actual performance, which amount, if any, shall be paid to Dr. Gilman in a lump sum at the same time in 2020 as annual performance bonuses for 2019 are paid to the Company’s actively employed executive officers and (ii) payment of the premiums to continue coverage under the Company’s group health plans, if elected, pursuant to COBRA, until December 31, 2019 or, if earlier, the date Dr. Gilman becomes no longer eligible for COBRA or becomes eligible to receive comparable coverage from a subsequent employer. Dr. Gilman will continue to serve as a director of the Company, and was appointed to serve as Vice Chairman of the Board and as Chairman of the Science and Technology Committee. Dr. Gilman is eligible to receive compensation for his service on the board and its committees in accordance with the Company’s
non-employee
director compensation program. Dr. Gilman’s service on the board will also constitute his continued service to the Company for purposes of the vesting and post-termination exercise period of each option to purchase shares of the Company’s common stock held by Dr. Gilman as of his resignation.
On December 12, 2017, the Company notified Lisa R. Ricciardi that she would no longer be needed to serve as Chief Operating Officer of the Company effective December 31, 2017. Subject to Ms. Ricciardi entering into a separation agreement, the Company accrued expense of $0.7 million for the severance payments and continued medical, dental and vision coverage under the Company’s group healthcare plans, to be provided for a period of 18 months following the effective date of Ms. Ricciardi’s termination, and recognized share-based compensation expense of $0.2 million for the accelerated vesting of all unvested portions of Ms. Ricciardi’s stock option grants. The total amount of these charges was recognized as part of general and administrative expenses in the consolidated statement of operations for the year ended December 31, 2017.
Legal Contingencies
From time to time, the Company may be involved in disputes and legal proceedings in the ordinary course of its business. These proceedings may include allegations of infringement of intellectual property, employment or other matters. The Company records a liability in its financial statements for these matters when a loss is known or considered probable and the amount can be reasonably estimated. The Company reviews these estimates each accounting period as additional information is known and adjusts the loss provision when appropriate. If a matter is both probable to result in a liability and the amounts of loss can be reasonably estimated, the Company estimates and discloses the possible loss or range of loss to the extent necessary to make the financial statements not misleading. If the loss is not probable or cannot be reasonably estimated, a liability is not recorded in the Company’s financial statements. The Company currently has no legal proceedings ongoing that management estimates could have a material effect on the Company’s financial statements.