10-Q
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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 March 31, 2020
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:
001-36167
 
Karyopharm Therapeutics Inc.
(Exact name of registrant as specified in its charter)
 
Delaware
 
26-3931704
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification Number)
     
85 Wells Avenue, 2nd Floor
Newton, MA
 
02459
(Address of principal executive offices)
 
(Zip Code)
(617)
658-0600
(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
, $0.0001 par value
 
KPTI
 
Nasdaq Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  
    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation
 S-T
(§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes 
    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated
filer, 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
 
 
Accelerated filer
 
             
Non-accelerated
filer
 
 
Smaller reporting company
 
             
 
 
Emerging growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule
 12b-2
of the Exchange Act).    Yes
 
 
 
    No  
As of April 30, 2020, there were
73,121,914
shares of Common Stock, $0.0001 par value per share, outstanding.
 
 

Table of Contents
TABLE OF CONTENTS
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
3
 
 
 
 
3
 
 
 
 
4
 
 
 
 
5
 
 
 
 
6
 
 
 
 
7
 
 
 
 
8
 
Item 2.
 
 
 
19
 
Item 3.
 
 
 
25
 
Item 4.
 
 
 
26
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 1.
 
 
 
26
 
Item 1.A.
 
 
 
27
 
Item 6.
 
 
 
70
 
 
 
 
71
 
2

Table of Contents
PART I—FINANCIAL INFORMATION
Item 1.
Condensed Consolidated Financial Statements (Unaudited).
KARYOPHARM THERAPEUTICS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands, except per share amounts)
 
March 31
,
2020
 
 
December 31
,
2019
 
Assets
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
202,247
 
 
$
128,858
 
Short-term investments
 
 
149,884
 
 
 
133,098
 
Accounts receivable
 
 
9,281
 
 
 
7,862
 
Inventory
 
 
970
 
 
 
346
 
Prepaid expenses and other current assets
 
 
7,551
 
 
 
7,289
 
Restricted cash
 
 
987
 
 
 
1,117
 
 
 
 
 
 
 
 
 
 
Total current assets
 
 
370,920
 
 
 
278,570
 
Property and equipment, net
 
 
2,814
 
 
 
3,046
 
Operating lease
right-of-use
assets
 
 
10,320
 
 
 
10,617
 
Long-term investments
 
 
31,373
 
 
 
2,016
 
Restricted cash
 
 
714
 
 
 
714
 
                 
Total assets
 
$
416,141
 
 
$
294,963
 
                 
Liabilities and stockholders’ equity
 
 
 
 
 
 
Current liabilities:
 
 
 
 
 
 
Accounts payable
 
$
1,694
 
 
$
985
 
Accrued expenses
 
 
43,783
 
 
 
40,878
 
Deferred revenue
 
 
1,287
 
 
 
2,341
 
Operating lease liabilities
 
 
1,711
 
 
 
1,646
 
Other current liabilities
 
 
1,224
 
 
 
500
 
 
 
 
 
 
 
 
 
 
Total current liabilities
 
 
49,699
 
 
 
46,350
 
Convertible senior notes
 
 
111,769
 
 
 
109,857
 
Deferred royalty obligation
 
 
73,588
 
 
 
73,588
 
Operating lease liabilities, net of current portion
 
 
12,746
 
 
 
13,202
 
Deferred revenue, net of current portion
 
 
2,192
 
 
 
2,192
 
                 
Total liabilities
 
 
249,994
 
 
 
245,189
 
Stockholders’ equity:
 
 
 
 
 
 
Preferred stock, $0.0001
par value; 5,000 shares authorized; none
issued and outstanding
 
 
 
 
 
 
Common stock, $0.0001
par value; 200,000
 shares authorized; 73,095
and 65,370
shares issued and outstanding at March 31
, 2020
and December 31
, 2019
, respectively
 
 
7
 
 
 
7
 
Additional
paid-in
capital
 
 
1,092,829
 
 
 
923,142
 
Accumulated other comprehensive loss
 
 
(420
)
 
 
(37
)
Accumulated deficit
 
 
(926,269
)
 
 
(873,338
)
                 
Total stockholders’ equity
 
 
166,147
 
 
 
49,774
 
                 
Total liabilities and stockholders’ equity
 
$
416,141
 
 
$
294,963
 
                 
See accompanying notes to condensed consolidated financial statements.
3

Table of Contents
KARYOPHARM THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
                 
 
Three Months Ended,
March 31,
 
 
2020
 
 
2019
 
Revenues:
 
 
 
 
 
 
Product revenue, net
 
$
16,061
 
 
$
 
License and other revenue
 
 
2,077
 
 
 
155
 
                 
Total revenues
 
 
18,138
 
 
 
155
 
                 
Operating expenses:
 
 
 
 
 
 
Cost of
s
ales
 
 
819
 
 
 
 
Research and development
 
 
33,997
 
 
 
37,974
 
Selling, general and administrative
 
 
30,678
 
 
 
27,103
 
                 
Total operating expenses
 
 
65,494
 
 
 
65,077
 
                 
Loss from operations
 
 
(47,356
)
 
 
(64,922
)
Other income (expense):
 
 
 
 
 
 
Interest income
 
 
975
 
 
 
1,771
 
Interest expense
 
 
(6,509
)
 
 
(2,998
)
Other income (expense), net
 
 
25
 
 
 
(2
)
                 
Total other expense, net
 
 
(5,509
)
 
 
(1,229
)
                 
Loss before income taxes
 
 
(52,865
)
 
 
(66,151
)
Income tax provision
 
 
(66
)
 
 
(10
)
                 
Net loss
 
$
(52,931
)
 
$
(66,161
)
                 
Net loss per share—basic and diluted
 
$
(0.78
)
 
$
(1.09
)
                 
Weighted-average number of common shares outstanding used in net loss per share—basic and diluted
 
 
67,627
 
 
 
60,856
 
                 
 
 
 
 
 
 
See accompanying notes to condensed consolidated financial statements.
4

Table of Contents
KARYOPHARM THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(unaudited)
(in thousands)
                 
 
Three Months Ended
March 31,
 
 
2020
 
 
2019
 
Net loss
 
$
(52,931
)
 
$
(66,161
)
                 
Comprehensive income (loss)
 
 
 
 
 
 
Unrealized (loss) gain on investments
 
 
(314
)
 
 
257
 
Foreign currency translation adjustment
 
 
(69
)
 
 
(41
)
                 
Comprehensive loss
 
$
(53,314
)
 
$
(65,945
)
                 
 
 
 
See accompanying notes to condensed consolidated financial statements.
5

Table of Contents
KARYOPHARM THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
 
Three Months Ended
March 31,
 
 
2020
 
 
2019
 
Operating activities
 
 
 
 
 
 
Net loss
 
$
(52,931
)
 
$
(66,161
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
 
 
 
Depreciation and amortization
 
 
242
 
 
 
245
 
Net amortization of premiums and discounts on investments
 
 
12
 
 
 
(522
)
Amortization of debt discount and issuance costs
 
 
1,912
 
 
 
1,704
 
Stock-based compensation expense
 
 
5,152
 
 
 
3,907
 
Changes in operating assets and liabilities:
 
 
 
 
 
 
Accounts receivable
 
 
(1,419
)
 
 
—  
 
Inventory
 
 
(624
)
 
 
—  
 
Prepaid expenses and other current assets
 
 
(268
)
 
 
(597
)
Operating lease
right-of-use
assets
 
 
297
 
 
 
263
 
Accounts payable
 
 
711
 
 
 
(2,016
)
Accrued expenses and other liabilities
 
 
3,350
 
 
 
(3,255
)
Deferred revenue
 
 
(1,054
)
 
 
—  
 
Operating lease liabilities
 
 
(391
)
 
 
(191
)
                 
Net cash used in operating activities
 
 
(45,011
)
 
 
(66,623
)
Investing activities
 
 
 
 
 
 
Purchases of property and equipment
 
 
(10
)
 
 
(49
)
Proceeds from maturities of investments
 
 
47,413
 
 
 
60,033
 
Purchases of investments
 
 
(93,882
)
 
 
(27,993
)
                 
Net cash (used in) provided by investing activities
 
 
(46,479
)
 
 
31,991
 
Financing activities
 
 
 
 
 
 
Proceeds from issuance of common stock, net of issuance costs
 
 
162,096
 
 
 
—  
 
Proceeds from the exercise of stock options and shares issued under employee stock purchase plan
 
 
2,733
 
 
 
152
 
                 
Net cash provided by financing activities
 
 
164,829
 
 
 
152
 
Effect of exchange rate on cash, cash equivalents and restricted cash
 
 
(80
)
 
 
(37
)
                 
Net increase (decrease) in cash, cash equivalents and restricted cash
 
 
73,259
 
 
 
(34,517
)
Cash, cash equivalents and restricted cash at beginning of period
 
 
130,689
 
 
 
118,737
 
                 
Cash, cash equivalents and restricted cash at end of period
 
$
203,948
 
 
$
84,220
 
                 
Reconciliation of cash, cash equivalents and restricted cash reported within the condensed
consolidated balance sheets
 
 
 
 
 
 
Cash and cash equivalents
 
$
202,247
 
 
$
83,506
 
Short-term restricted cash
 
 
987
 
 
 
  
 
Long-term restricted cash
 
 
714
 
 
 
714
 
                 
Total cash, cash equivalents and restricted cash
 
$
203,948
 
 
$
84,220
 
                 
Supplemental disclosures:
 
 
 
 
 
 
Operating lease
right-of-use
assets obtained in exchange for operating lease liabilities
 
$
—  
 
 
$
11,711
 
Deferred financing costs in accrued expenses
 
$
294
 
 
$
 
 
 
Cash paid for amounts included in the measurement of operating lease liabilities
 
$
796
 
 
$
630
 
Cash paid for interest on deferred royalty obligation 
 
$
1,240
 
 
$
—  
 
See accompanying notes to condensed consolidated financial statements.
6

Table of Contents
KARYOPHARM THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(unaudited)
(in thousands)
 
Common Shares
 
 
 
 
 
 
 
 
 
 
Shares
 
 
Amount
 
 
Additional
Paid-In

Capital
 
 
Accumulated
Other
Comprehensive
Loss
 
 
Accumulated
Deficit
 
 
Total
Stockholders’
Equity
 
Balance at December 31, 2019
 
 
65,370
 
 
$
7
 
 
$
923,142
 
 
$
(37
)
 
$
(873,338
)
 
$
49,774
 
Vesting of restricted stock
 
 
189
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options and shares issued under the
employee stock purchase plan
 
 
348
 
 
 
 
 
 
 
 
2,733
 
 
 
—  
 
 
 
—  
 
 
 
2,733
 
Stock-based compensation expense
 
 
 
 
 
 
 
 
 
 
 
 
5,152
 
 
 
—  
 
 
 
—  
 
 
 
5,152
 
Issuance of common stock, net of issuance costs
 
 
7,188
 
 
 
—  
 
 
 
161,802
 
 
 
—  
 
 
 
—  
 
 
 
161,802
 
Unrealized loss on investments
 
 
—  
 
 
 
—  
 
 
 
 
 
 
 
 
(314
)
 
 
—  
 
 
 
(314
)
Foreign currency translation adjustment
 
 
—  
 
 
 
—  
 
 
 
 
 
 
 
 
(69
)
 
 
—  
 
 
 
(69
)
Net loss
 
 
—  
 
 
 
—  
 
 
 
 
 
 
 
 
 
 
 
 
 
(52,931
)
 
 
(52,931
)
                                                 
Balance at March 31, 2020
 
 
73,095
 
 
$
7
 
 
$
1,092,829
 
 
$
(420
)
 
$
(926,269
)
 
$
166,147
 
                                                 
Balance at December 31, 2018
 
 
60,829
 
 
$
6
 
 
$
857,156
 
 
$
(244
)
 
$
(673,748
)
 
$
183,170
 
Vesting of restricted stock
 
 
5
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Exercise of stock options and shares issued under the
employee stock purchase plan
 
 
30
 
 
 
—  
 
 
 
152
 
 
 
 
 
 
 
 
—  
 
 
 
152
 
Stock-based compensation expense
 
 
—  
 
 
 
—  
 
 
 
3,907
 
 
 
 
 
 
 
 
—  
 
 
 
3,907
 
Unrealized gain on investments
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
257
 
 
 
—  
 
 
 
257
 
Foreign currency translation adjustment
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
(41
)
 
 
—  
 
 
 
(41
)
Net loss
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
—  
 
 
 
(66,161
)
 
 
(66,161
)
                                                 
Balance at March 31, 2019
 
 
60,864
 
 
$
6
 
 
$
861,215
 
 
$
(28
)
 
$
(739,909
)
 
$
121,284
 
                                                 
See accompanying notes to condensed consolidated financial statements.
7

Table of Contents
KARYOPHARM
THERAPEUTICS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business and Basis of Presentation
Nature of Business
Karyopharm Therapeutics Inc., a Delaware corporation (collectively with its subsidiaries, the “Company,” “we,” “us,” or “our”), is an innovation-driven pharmaceutical company focused on the discovery, development and commercialization of novel,
 first-in-class
 drugs directed against nuclear export and related targets for the treatment of cancer and other major diseases. We were incorporated in Delaware on December 22, 2008 and have a principal place of business in Newton, Massachusetts. Our 
S
elective
 I
nhibitor of
 N
uclear
 E
xport
 (
SINE
) compounds function by binding with and inhibiting the nuclear export protein exportin 1 (XPO1). Our initial focus has been on seeking the regulatory approval and commercialization of our lead SINE compound, selinexor, as an oral agent in cancer indications with significant unmet clinical need. In July 2019, the U.S. Food and Drug Administration (“FDA”) approved XPOVIO
®
(selinexor) tablets in combination with dexamethasone for the treatment of adult patients with relapsed or refractory multiple myeloma (“RRMM”) who have received at least four prior therapies and whose disease is refractory to at least two proteasome inhibitors, at least two immunomodulatory agents, and an anti-CD38 monoclonal antibody. XPOVIO became commercially available in the U.S. in July 2019. 
 
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Table of Contents
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial reporting and as required by Regulation
 S-X,
Rule
 10-01.
Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (including those which are normal and recurring) considered necessary for a fair presentation of the interim financial information have been included. When preparing financial statements in conformity with GAAP, we must make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures at the date of the financial statements. Actual results could differ from those estimates. Additionally, operating results for the three months ended March 31, 2020 are not necessarily indicative of the results that may be expected for any other interim period or for the fiscal year ending December 31, 2020. For further information, refer to the financial statements and footnotes included in our Annual Report on Form
 10-K
for the year ended December 31, 2019 as filed with the Securities and Exchange Commission (“SEC”) on February 26, 2020 (“Annual Report”).
Basis of Consolidation
The condensed consolidated financial statements at March 31, 2020 include the accounts of Karyopharm Therapeutics Inc. and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
The significant accounting policies used in preparation of these condensed consolidated financial statements on Form
 10-Q
for the three months ended March 31, 2020 are consistent with those discussed in Note 2, “
Summary of Significant Accounting Policies
,” in our Annual Report.
2. Recent Accounting Pronouncements and Other
Recently Adopted Accounting Standards
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No.
 2016-13,
Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
(“ASU
2016-13”).
Certain amendments thereto were also issued by the FASB. ASU
2016-13
and the related amendments require that credit losses be reported as an allowance using an expected loss model, representing the entity’s current estimate of credit losses expected to be incurred. The previous accounting guidance, as applied by us through December 31, 2019, was based on an incurred loss model. For
available-for-sale
debt securities with unrealized losses, ASU
2016-13
and the related amendments now require allowances to be recorded instead of reducing the amortized cost of the investment. ASU
2016-13
and the related amendments are effective for interim and annual fiscal periods beginning after December 15, 2019. We adopted this guidance effective January 1, 2020. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
In August 2018, the FASB issued ASU No.
 2018-13,
Fair Value Measurement—Disclosure Framework-Changes to the Disclosure Requirement for Fair Value Measurement
(“ASU
2018-13”).
The amendments in ASU
2018-13
modify the disclosure requirements on fair value measurements in Accounting Standards Codification (“ASC”) 820,
Fair Value Measurement
, based on the concepts in the FASB Concepts Statement, including the consideration of costs and benefits. The amendments under ASU
2018-13
are effective for interim and annual fiscal periods beginning after December 15, 2019, with early adoption permitted. We adopted this guidance effective January 1, 2020. The adoption of this standard did not have a material impact on our condensed consolidated financial statements.
In August 2018, the FASB issued ASU No.
2018-15,
 Intangible-Goodwill and Other Internal-Use Software (Subtopic 350-40)
(“ASU
 2018-15”).
ASU
 2018-15
updates guidance regarding accounting for implementation costs associated with a cloud computing arrangement that is a service contract. The amendments under ASU
 2018-15
are effective for interim and annual fiscal periods beginning after December 15, 2019, with early adoption permitted. We adopted this guidance effective January 1, 2020. The adoption of this standard did not have an impact on our condensed consolidated financial statements.
Other
In March 2020, the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act was signed into law and provides an estimated $2.2 trillion to fight the
COVID-19
pandemic and stimulate the U.S. economy. The business tax provisions of the CARES Act include temporary changes to income and
non-income-based
tax laws. Some of the key income tax provisions include eliminating the 80% of taxable income limitations by allowing corporate entities to fully utilize net operating loss (“NOL”) carryforwards to offset taxable income in 2020, 2019 or 2018 and reinstating it for tax years after 2020; allowing NOLs generated in 2020, 2019 or 2018 to be carried back five years; increasing the net interest expense deduction limit to 50% of adjusted taxable income from 30% for the 2020
9

Table of Contents
and 2019 tax years; allowing taxpayers with alternative minimum tax credits to claim a refund for the entire amount of the credit instead of recovering the credit through refunds over a period of years, as required by the 2017 Tax Cut and Jobs Act; and allowing entities to deduct more of their charitable cash contributions made during calendar year 2020 by increasing the taxable income limitation to 25% from 10%. Companies are required to account for these provisions in the period that includes the March 2020 enactment date (i.e., the first quarter for calendar
year-end
entities). We have assessed the impact of these provisions and they are not material to our condensed consolidated financial statements or related disclosures.
Measures not related to income-based taxes within the CARES Act include (1) allowing an employer to pay its share of Social Security payroll taxes that would otherwise be due from the date of enactment through December 31, 2020 over the following two years and (2) allowing eligible employers subject to closure due to the
COVID-19
pandemic to receive a 50% credit on qualified wages against their employment taxes each quarter, with any excess credits eligible for refunds. These measures of the CARES Act also are not material to our condensed financial statements or related disclosures.
 
3. Product Revenue
To date, our only
source
of product revenue has been from the U.S. sales of XPOVIO, which we began shipping to our customers in July 2019. For the three months ended March 31, 2020
,
we recorded net product
revenue of $16.1 million
.
 
We did not have net product revenue for the three months ended March 31, 2019. For the three months ended March 31, 2020, we recorded a
 
total of $
2.8
 million
as a reduction of revenue consisting primarily of distribution fees and cash discounts, as well as reserves for chargebacks, rebates and returns.
As of March 31, 2020 and December 31, 2019, net product revenue related to receivables of $9.3 million and $7.9 million, respectively, were included in accounts receivable. To date, we have no bad debt write-offs and we do not currently have credit issues with any customers. There were no credit losses associated with our
 accounts receivables as of
March 31, 2020.
4. Inventory
The following table presents our inventory of XPOVIO at March 31, 2020 and December 31, 2019 (in thousands):
 
March 31,
2020
 
 
December 31,
2019
 
Raw materials and work in process
 
$
817
 
 
$
273
 
Finished goods
 
 
153
 
 
 
73
 
                 
Total inventory
 
$
970
 
 
$
346
 
                 
At March 31, 2020, all of our inventory was related to XPOVIO, which was approved by the FDA in July 2019, at which time we began to capitalize costs to manufacture XPOVIO. Prior to FDA approval of XPOVIO, all costs related to the manufacturing of XPOVIO and related material were charged to research and development expense in the period incurred. At March 31, 2020, we have determined that a reserve related to XPOVIO inventory is not required.
5. License and Asset Purchase Agreements
In prior periods, we entered into
out-licensing
and asset purchase agreements with Anivive Lifesciences, Inc. (“Anivive”), Ono Pharmaceutical Co., Ltd. (“Ono”), Biogen MA Inc. (“Biogen”), and Antengene Therapeutics Limited (“Antengene”), all of which are accounted for within the scope of ASC 606,
Revenue from Contracts with Customers
. During the three months ended March 31, 2020, there were no material changes, including amendments and/or other contract modifications, to the above agreements.
For further details on the terms and accounting treatment considerations for the contracts noted above, please refer to Note 11, “
License and Asset Purchase Agreements
,” to our Consolidated Financial Statements contained in Item 8 of our Annual Report.
As summarized in the following table, which presents changes in balance sheet accounts for our
out-licensing
and asset purchase agreements, we
recognized $1.1 million
under the license agreement with Antengene during the three months ended March 31, 2020 (in thousands):
 
December 31, 2019
 
 
Additions
 
 
Deductions
 
 
March 31, 2020
 
Short-term Deferred Revenue
 
Antengene
 
$
2,341
 
 
$
—  
 
 
$
1,054
 
 
$
1,287
 
Total short-term deferred revenue
 
$
2,341
 
 
$
—  
 
 
$
1,054
 
 
$
1,287
 
Long-term Deferred Revenue
 
Ono
 
$
2,192
 
 
$
—  
 
 
$
—  
 
 
$
2,192
 
Total long-term deferred revenue
 
$
2,192
 
 
$
—  
 
 
$
—  
 
 
$
2,192
 
Total deferred revenue
 
$
4,533
 
 
$
—  
 
 
$
—  
 
 
$
3,479
 
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In April 2020, we terminated our October 2017 license agreement with Ono for the development and commercialization of selinexor and eltanexor for all human oncology indications in Japan, South Korea, Taiwan, Hong Kong, and the ASEAN countries. In addition, in May 2020, we amended our May 2018 license agreement with Antengene to expand the territory for the exclusive development and commercialization rights of selinexor and eltanexor and
KPT-9274,
each for the diagnosis, treatment and/or prevention of all human oncology indications, as well as verdinexor for the diagnosis, treatment and/or prevention of certain human
 non-oncology
 indications (the “Amended Antengene Agreement”). Under the terms of the Amended Antengene Agreement, Antengene now has the exclusive development and commercialization rights for selinexor and eltanexor,
KPT-9274
and verdinexor in Mainland China, Taiwan, Hong Kong, Macau, South Korea, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, Vietnam, Australia and New Zealand. Previously, Antengene’s territory covered mainland China and Macau for selinexor and eltanexor and mainland China, Taiwan, Hong Kong, Macau, South Korea, Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore, Thailand, and Vietnam for
KPT-9274
and verdinexor.
Under the terms of the original Antengene Agreement, we
received
an upfront cash payment of $11.7 million and were entitled to receive up to $105.0 million in milestone payments from Antengene if certain development goals are achieved and up to $45.0 million in milestone payments from Antengene if certain sales milestones are achieved. Under the terms of the Amended Antengene Agreement, we will receive an additional $12.0 million
one-time
upfront payment, which we expect to receive in the second quarter of 2020
 
and additional future milestone payments from Antengene if certain regulatory and commercialization goals are achieved. In addition, we are also eligible to receive tiered double-digit royalties based on future net sales of selinexor and eltanexor, and tiered single- to double-digit royalties based on future net sales of verdinexor and
KPT-9274
in the Antengene territory.
6. Fair Value of Financial Instruments
Financial instruments, including cash, restricted cash, prepaid expenses and other current assets, accounts payable and accrued expenses, are presented at amounts that approximate fair value at March 31, 2020 and December 31, 2019.
We are required to disclose information on all assets and liabilities reported at fair value that enables an assessment of the inputs used in determining the reported fair values. The fair value hierarchy prioritizes valuation inputs based on the observable nature of those inputs. The fair value hierarchy applies only to the valuation inputs used in determining the reported fair value of the investments and is not a measure of the investment credit quality. The hierarchy defines three levels of valuation inputs:
     
Level 1 inputs
 
Quoted prices in active markets for identical assets or liabilities
     
Level 2 inputs
 
Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly
     
Level 3 inputs
 
Unobservable inputs that reflect our own assumptions about the assumptions market participants would use in pricing the asset or liability
 
 
 
 
 
 
 
 
 
Our cash equivalents are composed of money market funds. We measure these investments at fair value. The fair value of cash equivalents is determined based on “Level 1” inputs.
Items classified as Level 2 within the valuation hierarchy consist of commercial paper, corporate debt securities, U.S. government and agency securities and certificates of deposit. We estimate the fair values of these marketable securities by taking into consideration valuations obtained from third-party pricing sources. These pricing sources utilize industry standard valuation models, including both income and market-based approaches, for which all significant inputs are observable, either directly or indirectly, to estimate fair value. These inputs include market pricing based on real-time trade data for the same or similar securities, issuer credit spreads, benchmark yields, and other observable inputs. We validate the prices provided by our third-party pricing sources by understanding the models used, obtaining market values from other pricing sources and analyzing pricing data in certain instances.
In certain cases where there is limited activity or less transparency around inputs to valuation, the related assets or liabilities are classified as Level 3. The embedded derivative liability associated with our deferred royalty obligation, as discussed further in Note 11, “Long-Term Obligations”, is measured at fair value using an option pricing Monte Carlo simulation model and is included as a component of the deferred royalty obligation. The embedded derivative liability is subject to remeasurement at the end of each reporting period, with changes in fair value recognized as a component of interest and other income (expense), net. The assumptions used in the option pricing Monte Carlo simulation model include: (1) our estimates of the probability and timing of related events; (2) the probability-weighted net sales of XPOVIO and any of our other future products, including worldwide net product sales and 
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Table of Contents
upfront payments, milestones and royalties; (3) our risk-adjusted discount rate that
includes
a company specific risk premium; (4) our cost of debt; (5) volatility; and (6) the probability of a change in control occurring during the term of the instrument. Our embedded derivative liability, as well as the estimated fair value of the deferred royalty obligation, is described in Note 2, “
Summary of Significant Accounting Policies
,” and Note 15, “
Long-Term Obligations
” to our Consolidated Financial Statements contained in Item 8 of our Annual Report.
 
The following table presents information about our financial assets and liability that have been measured at fair value at March 31, 2020 and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands):
                                 
Description
 
Total
 
 
Quoted Prices
in Active
Markets
(Level 1)
 
 
Significant
Other
Observable
Inputs
(Level 2)
 
 
Significant
Unobservable
Inputs
(Level 3)
 
Financial assets
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
152,770
 
 
$
152,770
 
 
$
—  
 
 
$
 
Commercial paper
 
 
1,500
 
 
 
 
 
 
1,500
 
 
 
 
Corporate debt securities
 
 
1,002
 
 
 
 
 
 
1,002
 
 
 
 
Investments:
 
 
 
 
 
 
 
 
 
 
 
 
Short-term:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
 
 
118,753
 
 
 
 
 
 
118,753
 
 
 
 
Commercial paper
 
 
31,131
 
 
 
 
 
 
31,131
 
 
 
 
Long-term:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities (one to
two-year
maturity)
 
 
26,361
 
 
 
 
 
 
26,361
 
 
 
 
U.S. government and agency securities (one to
two-year
maturity)
 
 
5,012
 
 
 
 
 
 
5,012
 
 
 
 
                                 
  $
336,529
    $
152,770
    $
183,759
    $
 
                                 
Financial liability
 
 
 
 
 
 
 
 
 
 
 
 
Embedded derivative liability
 
$
2,300
 
 
$
—  
 
 
$
—  
 
 
$
2,300
 
 
 
 
 
 
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Table of Contents
The following table presents information about our financial assets and liability that have been measured at fair value at December 31, 2019 and indicates the fair value hierarchy of the valuation inputs utilized to determine such fair value (in thousands):
                                 
Description
 
Total
 
 
Quoted Prices
in Active
Markets
(Level 1)
 
 
Significant
Other
Observable
Inputs
(Level 2)
 
 
Significant
Unobservable
Inputs
(Level 3)
 
Financial assets
 
 
 
 
 
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
 
 
 
 
 
Money market funds
 
$
71,380
 
 
$
71,380
 
 
$
—  
 
 
$
—  
 
Investments:
 
 
 
 
 
 
 
 
 
 
 
 
Short-term:
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities
 
 
89,079
 
 
 
—  
 
 
 
89,079
 
 
 
—  
 
Commercial paper
 
 
39,022
 
 
 
—  
 
 
 
39,022
 
 
 
—  
 
U.S. government and agency securities
 
 
4,997
 
 
 
—  
 
 
 
4,997
 
 
 
—  
 
Long-term
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt securities (one to
two-year
maturity)
 
 
2,016
 
 
 
—  
 
 
 
2,016
 
 
 
—  
 
                                 
 
$
206,494
 
 
$
71,380
 
 
$
135,114
 
 
$
—  
 
                                 
Financial liability
 
 
 
 
 
 
 
 
 
 
 
 
Embedded derivative liability
 
$
2,300
 
 
$
—