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Development Derivative Liability | 9 Months Ended
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Sep. 30, 2020
Research And Development [Abstract] |
Development Derivative Liability | 4. Development Derivative Liability On February 28, 2019, the Company entered into a development funding agreement, (the “SFJ Agreement”), with SFJ Pharmaceuticals Group or SFJ, under which SFJ agreed to provide funding to the Company to support the development of pegcetacoplan for the treatment of patients with PNH. Pursuant to the agreement, SFJ paid the Company $60.0 million following the signing of the agreement, and agreed to pay the Company up to an additional $60.0 million in the aggregate in three equal installments upon the achievement of specified development milestones with respect to the Company’s Phase 3 program for pegcetacoplan in PNH and subject to the Company having cash resources at the time sufficient to fund at least 10 months of the Company’s operations. On June 7, 2019, the Company and SFJ amended the development funding agreement, (the “SFJ Amendment”). Under the SFJ Amendment, SFJ agreed to make an additional $20.0 million funding payment to the Company to support the development of pegcetacoplan for the treatment of patients with PNH. This additional $20.0 million payment is in addition to and not part of the Additional SFJ Funding. In the nine months ended September 30, 2020 and the year ended December 31,2019, the Company received $20.0 million and $120.0 million, respectively, from SFJ, as the Company met milestones as identified in the SFJ Agreement. Under the SFJ Agreement following regulatory approval by the FDA or EMA for the use of pegcetacoplan as a treatment for PNH the Company will be obligated to pay SFJ an initial payment of up to $5.0 million (or a total of $10.0 million if regulatory approval is granted by the FDA and the EMA) and then up to an additional $226.0 million in the aggregate (or up to $452.0 million if regulatory approval is granted by the FDA and the EMA) in six additional annual payments with the majority of the payments being made from the third anniversary to the sixth anniversary of regulatory approval. Additionally, the Company granted a security interest in all of its assets, excluding intellectual property and license agreements to which it is a party. In connection with the grant of the security interest, the Company agreed to certain affirmative and negative covenants, including restrictions on its ability to pay dividends, incur additional debt or enter into licensing transactions with respect to its intellectual property, other than specified types of licenses. The SFJ Agreement is presented as a derivative liability on the balance sheet and is considered a level three derivative, and, as such, is remeasured each quarter. During the three months ended September 30, 2019, the Company received $20.0 million under the SFJ Agreement. The change in fair value due to the remeasurement of the development derivative liability resulted in a $2.7 million gain and a $0.3 million loss for the three months ended September 30, 2020 and 2019, respectively, recorded on the condensed consolidated statement of operations. During the nine months ended September 30, 2020 and 2019, the Company received $20.0 million and $120.0 million, respectively. The change in fair value of the development derivative liability included in the statement of operations for the nine months ended September 30, 2020 and 2019 resulted in a loss of $62.9 million and $10.1 million, respectively. The development derivative liability has a remeasured fair value of $217.8 million on the consolidated balance sheet at September 30, 2020. The following table presents a rollforward of the development derivative liability:
|  | Nine Months Ended September 30, |
|  | 2020 |  |  | 2019 |
Balance at fair market value, January 1, | $ | 134,839 |  |  | $ | — |
Amounts received under the SFJ agreement and SFJ amendment |  | 20,000 |  |  |  | 60,000 |
Loss recorded in loss from remeasurement of development derivative liability |  | 68,406 |  |  |  | 736 |
Balance at fair market value, March 31, | $ | 223,245 |  |  | $ | 60,736 |
Amounts received under the SFJ agreement and SFJ amendment |  | — |  |  |  | 40,000 |
(Gain)/loss recorded in loss from remeasurement of development derivative liability |  | (2,770 | ) |  |  | 9,104 |
Balance at fair market value, June 30, | $ | 220,475 |  |  | $ | 109,840 |
Amounts received under the SFJ agreement and SFJ amendment |  | — |  |  |  | 20,000 |
(Gain)/loss recorded in loss from remeasurement of development derivative liability |  | (2,697 | ) |  |  | 263 |
Balance at fair market value, September 30, | $ | 217,778 |  |  | $ | 130,103 |
The derivative is valued using a scenario-based discounted cash flow method, whereby each scenario makes assumptions about the probability and timing of cash flows, and such cash flows are present valued using a risk-adjusted discount rate. The analysis is calibrated such that the value of the derivative as of the date of the SFJ Agreement was consistent with an arm’s-length transaction. Key inputs to the level 3 fair value model include (i) the probability and timing of achieving stated development milestones to receive the next tranches of funding, (ii) the probability and timing of achieving FDA and EMA approval, (iii) SFJ’s cost of borrowing (8.0%), and (iv) the Company’s cost of borrowing (16.18%). SFJ’s implied cost of borrowing was 8.0% and the Company’s implied cost of borrowing was 16.18% as of the reporting date. These implied costs of borrowing were determined assuming the SFJ Agreement was initially executed with arm’s-length terms. If the SFJ Agreement was instead not determined to be an arm’s-length transaction, then implied discount rates could differ.

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