sesn-20210331

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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, 2021


☐			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: 001-36296

Sesen Bio, Inc.

(Exact name of registrant as specified in its charter)


Delaware			26-2025616
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)


245 First Street, Suite 1800 Cambridge, MA			02142
(Address of principal executive offices)			(Zip Code)

(617) 444-8550

(Registrant’s telephone number, including area code)

Not applicable.

(Former name, former address and former fiscal year, if changed since last report)

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, $0.001 par value	SESN	The Nasdaq Stock 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Smaller reporting company	☒
Accelerated Filer	☐	Emerging growth company	☐
Non-accelerated filer	☒

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 ☒

There were 173,287,287 shares of the registrant's common stock outstanding as of May 3, 2021.

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SESEN BIO, INC.

Quarterly Report on Form 10-Q for the Quarterly Period ended March 31, 2021

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		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements.	1
	Condensed Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020	1
	Condensed Consolidated Statements of Operations and Comprehensive (Loss) Income for the Three Months ended March 31, 2021 and 2020	2
	Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) for the Three Months ended March 31, 2021 and 2020	3
	Condensed Consolidated Statements of Cash Flows for the Three Months ended March 31, 2021 and 2020	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	36
Item 4.	Controls and Procedures.	36

	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings.	37
Item 1A.	Risk Factors.	37
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	37
Item 3.	Defaults Upon Senior Securities.	37
Item 4.	Mine Safety Disclosures.	37
Item 5.	Other Information.	37
Item 6.	Exhibits.	38

	SIGNATURES

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

SESEN BIO, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited; In thousands, except share and per share data)


	March 31, 2021		December 31, 2020
Assets
Current assets:
Cash and cash equivalents	$	109,965	$	52,389
Accounts receivables	2,886		—
Prepaid expenses and other current assets	13,728		7,478
Restricted cash	—		3,000
Total current assets	126,579		62,867
Restricted cash	20		20
Property and equipment, net of accumulated depreciation of $911 and $882, respectively	93		123
Intangible assets	46,400		46,400
Goodwill	13,064		13,064
Other assets	258		349
Total Assets	$	186,414	$	122,823
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities:
Accounts payable	$	2,004	$	3,102
Accrued expenses	3,538		3,973
Deferred revenue	1,500		1,500
Contingent consideration	9,835		8,985
Other current liabilities	490		489
Total current liabilities	17,367		18,049
Contingent consideration, net of current portion	147,165		99,855
Deferred revenue, net of current portion	—		1,500
Deferred tax liability	12,528		12,528
Other liabilities	84		118
Total Liabilities	$	177,144	$	132,050

Stockholders’ Equity ( Deficit):
Preferred stock, $0.001 par value per share; 5,000,000 shares authorized at March 31, 2021 and December 31, 2020; no shares issued and outstanding at March 31, 2021 and December 31, 2020	—		—
Common stock, $0.001 par value per share; 200,000,000 shares authorized at March 31, 2021 and December 31, 2020; 171,978,799 and 140,449,647 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively	172		140
Additional paid-in capital	380,531		306,554
Accumulated deficit	(371,433)		(315,921)
Total Stockholders’ Equity (Deficit)	9,270		(9,227)
Total Liabilities and Stockholders’ Equity (Deficit)	$	186,414	$	122,823

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SESEN BIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE (LOSS) INCOME

(Unaudited; In thousands, except per share data)


	Three Months ended March 31,
	2021		2020
License revenue	$	4,310	$	—

Operating expenses:
Research and development	6,078		8,867
General and administrative	5,293		3,448
Change in fair value of contingent consideration	48,160		(53,700)
Total operating expenses	59,531		(41,385)
(Loss) Income from operations	(55,221)		41,385
Other (expense) income, net:
Other (expense) income, net	(3)		179
Net (Loss) Income and Comprehensive (Loss) Income Before Taxes	(55,224)		41,564
Provision for income taxes	(288)		—
Net (Loss) Income and Comprehensive (Loss) Income After Taxes	$	(55,512)	$	41,564



Net (loss) income attributable to common stockholders - basic	(55,512)		34,407
Net (loss) income attributable to common stockholders - diluted	(55,512)		34,408

Net (loss) income per common share - basic	$	(0.35)	$	0.31
Weighted-average common shares outstanding - basic	157,033		109,808

Net (loss) income per common share - diluted	$	(0.35)	$	0.31
Weighted-average common shares outstanding - diluted	157,033		109,823

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SESEN BIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(Unaudited; In thousands, except share data)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2020	140,449,647	$	140	$	306,554	$	(315,921)	$	(9,227)
Net loss	—	—		—		(55,512)		(55,512)
Share-based compensation	—	—		958		—		958
Exercises of stock options	30,610	—		39		—		39
Exercises of common stock warrants	852,840	1		468				469
Issuance of common stock under ATM Offering, net of issuance costs of $2.2 million	30,645,702	31		72,512		—		72,543
Balance at March 31, 2021	171,978,799	$	172	$	380,531	$	(371,433)	$	9,270


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Stockholders’ Equity
	Shares	Amount
Balance at December 31, 2019	106,801,409	$	107	$	266,717	$	(293,524)	$	(26,700)
Net income	—	—		—		41,564		41,564
Share-based compensation	—	—		407		—		407
Sales of common stock under 2014 ESPP	2,785	—		1		—		1
Issuance of common stock under ATM Offering, net of issuance costs of $0.1 million	3,187,359	3		3,176		—		3,179
Balance at March 31, 2020	109,991,553	$	110	$270,301		$	(251,960)	$	18,451

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SESEN BIO, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; In thousands)


	Three Months ended March 31,
	2021		2020
Cash Flows from Operating Activities:
Net (loss) income	$	(55,512)	$	41,564
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	30		31
Share-based compensation	958		407
Change in fair value of contingent consideration	48,160		(53,700)
Changes in operating assets and liabilities:
Accounts receivable (net)	(2,886)		—
Prepaid expenses and other assets	(6,159)		4,011
Accounts payable	(1,098)		166
Accrued expenses and other liabilities	(468)		(1,317)
Deferred revenue (ST and LT)	(1,500)		—
Net Cash Used in Operating Activities	(18,475)		(8,838)
Cash Flows from Investing Activities:

Net Cash Used in Investing Activities	—		—
Cash Flows from Financing Activities:
Proceeds from issuance of common stock under ATM Offering, net of issuance costs	72,543		3,179
Proceeds from sales of common stock under 2014 ESPP	—		1
Proceeds from exercises of stock options	39		0

Proceeds from the exercise of common stock warrants	469		—
Net Cash Provided by Financing Activities	73,051		3,180
Net Increase (Decrease) in Cash, Cash Equivalents and Restricted Cash	54,576		(5,658)
Cash, Cash Equivalents and Restricted Cash - Beginning of Period	55,409		48,141
Cash, Cash Equivalents and Restricted Cash - End of Period	$	109,985	$	42,483

Supplemental disclosure of non-cash operating activities:
Cash paid for amounts included in the measurement of lease liabilities	$	43	$	38

The accompanying notes are an integral part of these condensed consolidated financial statements.

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SESEN BIO, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. DESCRIPTION OF BUSINESS

Sesen Bio, Inc. ("Sesen" or the “Company”), a Delaware corporation formed in February 2008, is a late-stage clinical company advancing targeted fusion protein therapeutics ("TFPTs") for the treatment of patients with cancer. The Company’s most advanced product candidate, VicineumTM, also known as VB4-845, is a locally-administered targeted fusion protein composed of an anti-epithelial cell adhesion molecule ("EpCAM") antibody fragment tethered to a truncated form of Pseudomonas exotoxin A for the treatment of bacillus Calmette-Guerin ("BCG")-unresponsive non-muscle invasive bladder cancer ("NMIBC"). The Company has an ongoing single-arm, multi-center, open-label Phase 3 clinical trial of Vicineum as a monotherapy in patients with BCG-unresponsive NMIBC (the "VISTA Trial"). The VISTA Trial completed enrollment in April 2018 with a total of 133 patients. On December 18, 2020, the Company submitted its completed Biologics License Application (the "BLA") for Vicineum for the treatment of BCG-unresponsive NMIBC to the United States Food and Drug Administration ("FDA"). On February 12, 2021, the FDA notified the Company that it has accepted for filing the BLA. The FDA also granted Priority Review for the BLA and the anticipated target PDUFA date for a decision on the BLA is August 18, 2021. In addition to the file acceptance and granting of Priority Review, the FDA also indicated that it is not currently planning to hold an advisory committee meeting to discuss the BLA for Vicineum. The Company operates in one segment under the direction of its Chief Executive Officer (chief operating decision maker). The Company was formerly known as Eleven Biotherapeutics, Inc. until its name changed in May 2018.

Viventia Acquisition

In September 2016, the Company entered into a Share Purchase Agreement with Viventia Bio, Inc., a corporation incorporated under the laws of the Province of Ontario, Canada ("Viventia"), the shareholders of Viventia named therein (the “Selling Shareholders”) and, solely in its capacity as seller representative, Clairmark Investments Ltd., a corporation incorporated under the laws of the Province of Ontario, Canada (“Clairmark”) (the “Share Purchase Agreement”), pursuant to which the Company agreed to and simultaneously completed the acquisition of all of the outstanding capital stock of Viventia from the Selling Shareholders (the “Viventia Acquisition”). In connection with the closing of the Viventia Acquisition, the Company issued 4.0 million shares of its common stock to the Selling Shareholders, which at that time represented approximately 19.9% of the voting power of the Company as of immediately prior to the issuance of such shares. Clairmark is an affiliate of Leslie L. Dan, who served as a director of the Company until his retirement in July 2019.

In addition, under the Share Purchase Agreement, the Company is obligated to pay to the Selling Shareholders certain post-closing contingent cash payments upon the achievement of specified milestones and based upon net sales, in each case subject to the terms and conditions set forth in the Share Purchase Agreement, including: (i) a one-time milestone payment of $12.5 million payable upon the first sale of Vicineum (the “Purchased Product”) in the United States; (ii) a one-time milestone payment of $7 million payable upon the first sale of the Purchased Product in any one of certain specified European countries; (iii) a one-time milestone payment of $3 million payable upon the first sale of the Purchased Product in Japan; and (iv) quarterly earn-out payments equal to 2% of net sales of the Purchased Product during specified earn-out periods. Such earn-out payments are payable with respect to net sales in a country beginning on the date of the first sale in such country and ending on the earlier of (i) December 31, 2033 and (ii) fifteen years after the date of such sale, subject to early termination in certain circumstances if a biosimilar product is on the market in the applicable country (collectively, the "Contingent Consideration"). Under the Share Purchase Agreement, the Company, its affiliates, licensees and subcontractors are required to use commercially reasonable efforts for the first seven years following the closing of the Viventia Acquisition, to achieve marketing authorizations throughout the world and, during the applicable earn-out period, to commercialize the Purchased Product in the United States, France, Germany, Italy, Spain, United Kingdom, Japan, China and Canada. Certain of these payments are payable to individuals or affiliates of individuals that became employees or members of the Company's board of directors, however as of March 31, 2021, none of these individuals are active employees or members of the Company's board of directors.

Liquidity and Going Concern

As of March 31, 2021, the Company had cash and cash equivalents of $110 million, net working capital of $109.2 million and an accumulated deficit of $371.4 million. The Company incurred negative cash flows from operating activities of $30.8 million for the year ended December 31, 2020 and $18.5 million for the three months ended March 31, 2021. Since its inception, the Company has received no revenue from sales of its products, and management anticipates that operating losses will continue as the Company continues into the follow-up stage of its ongoing Phase 3 VISTA Trial for Vicineum for the treatment of BCG-unresponsive NMIBC and seeks marketing approval from the FDA and the European Medicines Agency, and if approved, commercializes Vicineum. The Company has financed its operations to date primarily through private placements of its common stock, preferred stock, common stock warrants and convertible bridge notes, venture debt borrowings, its initial public

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offering ("IPO"), follow-on public offerings, sales effected in "at-the-market" ("ATM") offerings, out-licensing agreements and OUS business development partnership agreements, and, to a lesser extent, from a collaboration. See “Note 9. Stockholders’ Equity (Deficit)” below for information regarding the Company’s recently completed equity financings.

Under Accounting Standards Codification ("ASC") Topic 205-40, Presentation of Financial Statements - Going Concern, management is required at each reporting period to evaluate whether there are conditions and events, considered in the aggregate, that raise substantial doubt about an entity's ability to continue as a going concern within one year after the date that the financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management's plans that have not been fully implemented as of the date the financial statements are issued. When substantial doubt exists, management evaluates whether the mitigating effect of its plans sufficiently alleviates the substantial doubt about the Company's ability to continue as a going concern. The mitigating effect of management's plans, however, is only considered if both (i) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued and (ii) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be considered probable of being effectively implemented, the plans must have been approved by the Company's board of directors before the date that the financial statements are issued.

The Company's future success is dependent on its ability to develop and commercialize Vicineum for the treatment of BCG-unresponsive NMIBC, and ultimately upon its ability to attain profitable operations. In order to commercialize its product candidates, including Vicineum for the treatment of BCG-unresponsive NMIBC, the Company needs to complete clinical development and comply with comprehensive regulatory requirements. The Company is subject to a number of risks similar to other late-stage clinical companies, including, but not limited to, successful discovery and development of its product candidates, raising additional capital, development and commercialization by its competitors of new technological innovations, protection of proprietary technology, market acceptance of its products and dependence on third parties for the development and commercialization of Vicineum in certain markets. The successful discovery and development of product candidates, including Vicineum for the treatment of BCG-unresponsive NMIBC, requires substantial working capital, and management expects to seek additional funds through equity or debt financings or through additional business development partnerships, collaborations or licensing transactions or other sources. The Company may be unable to obtain equity or debt financings or enter into additional business development partnerships, collaborations or licensing transactions on favorable terms, or at all. To the extent that the Company raises additional capital through the sale of equity or convertible debt securities, the ownership interests of existing stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financing, if available, may involve agreements that include liens or other restrictive covenants limiting the Company's ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If the Company raises additional funds through government or other third-party funding, strategic collaborations, business development agreements, partnerships, alliances or licensing arrangements, it may have to relinquish valuable rights to its technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable. If the Company is unable to raise additional funds when needed, it may be required to implement cost reduction strategies and delay, limit, reduce or terminate its product development, regulatory approval or future commercialization efforts or grant rights to develop and market products or product candidates that management would otherwise prefer to develop and market.

The Company's management does not believe that its cash and cash equivalents of $110 million as of March 31, 2021 are sufficient to fund the Company's current operating plan for at least twelve months after the issuance of these condensed consolidated financial statements. Given the history of significant losses, negative cash flows from operations, limited cash resources currently on hand, the impact of the ongoing COVID-19 pandemic on the capital markets, and dependence by the Company on its ability - about which there can be no certainty - to obtain additional financing to fund its operations after the current cash resources are exhausted, substantial doubt exists about the Company's ability to continue as a going concern. These condensed consolidated financial statements were prepared under the assumption that the Company will continue as a going concern and do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

2. BASIS OF PRESENTATION

The accompanying financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the ASC and Accounting Standards Updates (“ASUs”), promulgated by the Financial Accounting Standards Board (“FASB”).

Interim Financial Statements

The accompanying unaudited interim condensed consolidated financial statements have been prepared from the books and records of the Company in accordance with GAAP for interim financial information and Rule 10-01 of Regulation S-X

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promulgated by the United States Securities and Exchange Commission (“SEC”), which permit reduced disclosures for interim periods. All adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the accompanying condensed consolidated balance sheets and statements of operations and comprehensive (loss) income, stockholders’ equity (deficit) and cash flows have been made. Although these interim financial statements do not include all of the information and footnotes required for complete annual financial statements, management believes the disclosures are adequate to make the information presented not misleading. These unaudited interim results of operations and cash flows for the three months ended March 31, 2021 are not necessarily indicative of the results that may be expected for the full year. These unaudited interim condensed consolidated financial statements and footnotes should be read in conjunction with the Company’s audited annual consolidated financial statements and footnotes included in its Annual Report on Form 10-K, as filed with the SEC on March 15, 2021, wherein a more complete discussion of significant accounting policies and certain other information can be found.

Use of Estimates

The preparation of financial statements in accordance with GAAP and the rules and regulations of the SEC requires the use of estimates and assumptions, based on judgments considered reasonable, which affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and assumptions on historical experience, known trends and events and various other factors that management believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Although management believes its estimates and assumptions are reasonable when made, they are based upon information available at the time they are made. Management evaluates the estimates and assumptions on an ongoing basis and, if necessary, makes adjustments. Due to the risks and uncertainties involved in the Company’s business and evolving market conditions, and given the subjective element of the estimates and assumptions made, actual results may differ from estimated results. The most significant estimates and judgments impact the fair value of intangible assets, goodwill and contingent consideration; income taxes (including the valuation allowance for deferred tax assets); research and development expenses; revenue recognition and going concern considerations.

Principles of Consolidation

The Company’s condensed consolidated financial statements include the accounts of the Company, its wholly owned subsidiary Viventia and its indirect subsidiaries, Viventia Bio USA Inc. and Viventia Biotech (EU) Limited. All intercompany transactions and balances have been eliminated in consolidation.

Foreign Currency Translation

The functional currency of the Company and each of its subsidiaries is the U.S. dollar.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company's complete summary of significant accounting policies can be found in "Item 15. Exhibits and Financial Statement Schedules - Note 3. Summary of Significant Accounting Policies" in the audited annual consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2020.

4. RECENT ACCOUNTING PRONOUNCEMENTS

Adopted in 2021

In December 2019, the FASB issued ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes ("ASU 2019-12"). ASU 2019-12 simplifies the accounting for income taxes by removing certain exceptions to the general principles in Topic 740. The amendments in ASU 2019-12 also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance. ASU 2019-12 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted. The method with which the amendments in this ASU are to be applied varies depending on the nature of the tax item impacted by amendment. The Company adopted this guidance effective January 1, 2021, and it did not have a material impact on its financial position, results of operations or cash flows.

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5. FAIR VALUE MEASUREMENT AND FINANCIAL INSTRUMENTS

The carrying values of cash and cash equivalents, restricted cash, prepaid expenses and other current assets, and accounts payable on the Company’s condensed consolidated balance sheets approximated their fair values as of March 31, 2021 and December 31, 2020 due to their short-term nature.

Certain of the Company’s financial instruments are measured at fair value using a three-level hierarchy that prioritizes the inputs used to measure fair value. This fair value hierarchy prioritizes the use of observable inputs and minimizes the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:

Level 1: Inputs are quoted prices for identical instruments in active markets.

Level 2: Inputs are quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; or model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3: Inputs are unobservable and reflect the Company’s own assumptions, based on the best information available, including the Company’s own data.

The following tables set forth the carrying amounts and fair values of the Company's financial instruments measured at fair value on a recurring basis as of March 31, 2021 and December 31, 2020 (in thousands):


	March 31, 2021
					Fair Value Measurement Based on
	Carrying Amount		Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (cash equivalents)	$	16,377	$	16,377	$	16,377	$	—	$	—
Liabilities:
Contingent consideration - short term	$	9,835	$	9,835	$	—	$	—	$	9,835
Contingent consideration - long term	147,165		147,165		—		—		147,165


	December 31, 2020
					Fair Value Measurement Based on
	Carrying Amount		Fair Value		Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Money market funds (cash equivalents)	$	16,374	$	16,374	$	16,374	$	—	$	—
Liabilities:
Contingent consideration - short term	$	8,985	$	8,985	$	—	$	—	$	8,985
Contingent consideration - long term	99,855		$	99,855	—		—		99,855

The Company evaluates transfers between fair value levels at the end of each reporting period. There were no transfers of assets or liabilities between fair value levels during the three months ended March 31, 2021.

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Contingent Consideration

On September 20, 2016, the Company acquired Viventia through the issuance of shares of common stock plus contingent consideration, pursuant to the terms of a Share Purchase Agreement. The Company recorded the acquired assets and liabilities based on their estimated fair values as of the acquisition date and finalized its purchase accounting for the Viventia Acquisition during the third quarter of 2017. The contingent consideration relates to amounts potentially payable to the former shareholders of Viventia under the Share Purchase Agreement. Contingent consideration is measured at its estimated fair value at each reporting period, with fluctuations in value resulting in a non-cash charge to earnings (or loss) during the period. The estimated fair value measurement is based on significant inputs, including internally developed financial forecasts, probabilities of success, and the timing of certain milestone events and achievements, which are not observable in the market, representing a Level 3 measurement within the fair value hierarchy. The valuation of contingent consideration requires the use of significant assumptions and judgments, which management believes are consistent with those that would be made by a market participant. Management reviews its assumptions and judgments on an ongoing basis as additional market and other data is obtained, and any future changes in the assumptions and judgments utilized by management may cause the estimated fair value of contingent consideration to fluctuate materially, resulting in earnings volatility.

The estimated fair value of the Company’s contingent consideration was determined using probabilities of successful achievement of regulatory milestones and commercial sales, the period in which these milestones and sales are expected to be achieved ranging from 2021 to 2033, the level of commercial sales of Vicineum forecasted for the United States, Europe, Japan, China and other potential markets and discount rates ranging from 7.4% to 7.8% as of March 31, 2021 and 8.4% to 8.8% as of December 31, 2020. There have been no changes to the valuation methods utilized during the three months ended March 31, 2021.

The following table sets forth a summary of the change in the fair value of the Company's total contingent consideration liability, measured on a recurring basis at each reporting period, for the three months ended March 31, 2021 (in thousands):


Balance at December 31, 2020	$108,840
Change in fair value of contingent consideration - short term	850
Change in fair value of contingent consideration - long term	47,310
Balance at March 31, 2021	$	157,000

The fair value of the Company’s contingent consideration is determined based on the present value of projected future cash flows associated with sales based milestones and earnouts on net sales and is heavily dependent on discount rates to estimate the fair value at each reporting period. Earnouts are determined using an earnout rate of 2% on all commercial net sales of Vicineum through December 2033. The discount rate applied to the 2% earnout is derived from the Company’s estimated weighted-average cost of capital (“WACC”), which has fluctuated from 8.8% as of December 31, 2020 to 7.8% as of March 31, 2021. Milestone payments constitute debt-like obligations, and therefore a high-yield debt index rate is applied to the milestones in order to determine the estimated fair value. This index rate changed from 8.4% as of December 31, 2020 to 7.4% as of March 31, 2021. Improvements to the competitive landscape, higher probability of regulatory success, expanded patient population, as well as the refinement of estimated launch timelines, if approved, in certain markets outside the United States, and the aforementioned changes in discounts rates, resulted in an overall $48.2 million increase in the estimated fair value of contingent consideration during the three months ended March 31, 2021. The current portion of total contingent consideration reflects amounts expected to be paid out within twelve months of March 31, 2021.

6.INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

Intangible assets on the Company's condensed consolidated balance sheet are the result of the Viventia Acquisition in September 2016. The following table sets forth the composition of intangible assets as of March 31, 2021 and December 31, 2020 (in thousands):

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	March 31, 2021		December 31, 2020
IPR&D intangible assets:
Vicineum United States rights	$	31,700	$	31,700
Vicineum European Union rights	14,700		14,700
Total Intangibles	$	46,400	$	46,400

Goodwill

Goodwill on the Company's condensed consolidated balance sheets is the result of the Viventia Acquisition in September 2016. Goodwill had a carrying value of $13.1 million as of March 31, 2021 and December 31, 2020.

7. LEASES

The Company accounts for operating leases under ASC Topic 842, Leases. An operating lease for its 31,100 square foot facility in Winnipeg, Manitoba which consists of manufacturing, laboratory, warehouse and office space. In September 2020, the Company entered into an extension of this lease for an additional two years, through September 2022, with a right to extend the lease for one subsequent three-year term. The minimum monthly rent under this lease is $13,500 per month. In addition to rent expense, the Company expects to incur $12,300 per month in related operating expenses. Operating lease cost under this lease, including the related operating costs, was $82,000 and $76,000 for the three months ended March 31, 2021 and 2020, respectively.

The asset component of the Company’s operating leases is recorded as operating lease right-of-use assets and reported within other assets on the Company's condensed consolidated balance sheets. The short-term lease liability is recorded in other current liabilities and the long term lease liability is recorded in other liabilities on the Company’s condensed consolidated balance sheets. Operating lease cost is recognized on a straight-line basis over the term of the lease.

In addition, the Company has short-term property leases for modular office space for 1) its corporate headquarters in Cambridge, MA and 2) office space in Philadelphia, PA. The short-term leases renew every three months to six months and currently extend through July and November 2021, respectively. The minimum monthly rent for these office spaces is $20,000 per month, which is subject to change if and as the Company adds or deducts space to or from the leases. The Company recorded $69,000 and $66,000 in rent expense for the three months ended March 31, 2021 and 2020, respectively. The Company's accounting policy election was disclosed in "Item 15. Exhibits and Financial Statement Schedules - Note. 3. Summary of Significant Accounting Policies" in the audited annual consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2020.

8. ACCRUED EXPENSES

The following table sets forth the composition of accrued expenses as of March 31, 2021 and December 31, 2020 (in thousands):


	March 31, 2021		December 31, 2020
Research and development	$	892	$	1,372
Payroll-related expenses	899		1,892
Income tax payable	288		—
Professional fees	1,347		684
Other	112		25
Total Accrued Expenses	$	3,538	$	3,973

9. STOCKHOLDERS' EQUITY (DEFICIT)

Equity Financings

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ATM Offering

In November 2019, the Company entered into an Open Market Sale Agreement SM (the "Sale Agreement") with Jefferies LLC ("Jefferies"), under which the Company may issue and sell shares of its common stock, par value $0.001 per share, from time to time for an aggregate sales price of up to $35 million through Jefferies (the "ATM Offering"). In October 2020 and February 2021, the Company entered into Amendment No. 1 and No. 2 (the “Amendments”) to the Sale Agreement, respectively. The Amendments revised the Sale Agreement to reflect that the Company may issue and sell shares of its common stock from time to time for an aggregate sales price of up to an additional $50 million and $34.5 million through Amendment No. 1 and No. 2 to the Sale Agreement, respectively. Sales are made by any method that is deemed to be an ATM offering as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended, including but not limited to sales made directly on or through the Nasdaq Global Market or any other existing trading market for our common stock. The Company has no obligation to sell any of its common stock and may at any time suspend offers under the Sale Agreement or terminate the Sale Agreement. Subject to the terms and conditions of the Sale Agreement, Jefferies will use its commercially reasonable efforts to sell common stock from time to time, as the sales agent, based upon the Company’s instructions, which include a prohibition on sales below a minimum price set by the Company from time to time. The Company has provided Jefferies with customary indemnification rights, and Jefferies is entitled to a commission at a fixed rate equal to 3.0% of the gross proceeds for each sale of common stock under the Sale Agreement. The Company raised $72.6 million of net proceeds from the sale of 30.6 million shares of common stock at a weighted-average price of $2.44 per share during the three months ended March 31, 2021 compared to $3.2 million of net proceeds from the sale of 3.2 million shares of common stock at a weighted-average price of $1.02 per share during the three months ended March 31, 2020. Share issue costs, including sales agent commissions, related to the ATM Offering totaled $2.2 million and $0.1 million during the three months ended March 31, 2021and 2020, respectively.

Preferred Stock

Pursuant to its Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation"), the Company is authorized to issue 5.0 million shares of "blank check" preferred stock, $0.001 par value per share, which enables its board of directors, from time to time, to create one or more series of preferred stock. Each series of preferred stock issued shall have the rights, preferences, privileges and restrictions as designated by the board of directors. The issuance of any series of preferred stock could affect, among other things, the dividend, voting and liquidation rights of the common stock. The Company had no preferred stock issued and outstanding as of March 31, 2021 and December 31, 2020.

Common Stock

Pursuant to its Certificate of Incorporation, the Company is authorized to issue 200 million shares of common stock, of which 172 million and 140.4 million shares were issued and outstanding as of March 31, 2021 and December 31, 2020, respectively. In addition, the Company had reserved for issuance the following number of shares of common stock for the purposes described below as of March 31, 2021 and December 31, 2020 (in thousands):


	March 31, 2021	December 31, 2020
Shares of common stock issued	171,979	140,450
Shares of common stock reserved for issuance for:
Warrants	1,394	2,247
Stock options	14,380	10,147
Shares available for grant under 2014 Stock Incentive Plan	760	4,863
Total shares of common stock issued and reserved for issuance	188,513	157,707

The voting, dividend and liquidation rights of holders of shares of common stock are subject to and qualified by the rights, powers and preferences of holders of shares of preferred stock. Each share of common stock entitles the holder to one vote on all matters submitted to a vote of the Company's stockholders; provided, however, that, except as otherwise required by law, holders of common stock shall not be entitled to vote on any amendment to the Company’s Certificate of Incorporation that relates solely to the terms of one or more outstanding series of preferred stock if the holders of such affected series are entitled, either separately or together as a class with the holders of one or more such series, to vote thereon. There shall be no cumulative voting.

Dividends may be declared and paid on the common stock from funds lawfully available thereof as and when determined by the board of directors and subject to any preferential dividend or other rights of any then-outstanding preferred stock. The

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Company has never declared or paid, and for the foreseeable future does not expect to declare or pay, dividends on its common stock.

Upon the dissolution or liquidation of the Company, whether voluntary or involuntary, holders of common stock will be entitled to receive all assets of the Company available for distribution to its stockholders, subject to any preferential or other rights of any then-outstanding preferred stock.

Warrants

All of the Company’s outstanding warrants are non-tradeable and permanently classified as equity because they meet the derivative scope exception under ASC Topic 815-40, Derivatives and Hedging - Contracts in Entity’s Own Equity ("ASC 815-40"). The following table sets forth the Company's warrant activity for the three months ended March 31, 2021 (in thousands):


			Year-to-Date Warrant Activity
Issued	Exercise Price (1)	Expiration	December 31, 2020	Issued	(Exercised)	(Expired)	March 31, 2021
Jun-2019	$1.47	Jun-2020	—	—	—	—	—
Mar-2018	$0.55*	Mar-2023	1,705	—	(378)	—	1,327
Nov-2017	$0.55*	Nov-2022	487	—	(475)	—	12
May-2015	$11.83	Nov-2024	28	—	—	—	28
Nov-2014	$11.04	Nov-2024	27	—	—	—	27
			2,247	—	(853)	—	1,394

* Exercise price shown (i) reflects modification (ii) subject to further adjustment based on down round provision added by amendment described in "Item 15. Exhibits and Financial Statement Schedules - Note. 10 Stockholders' (Deficit) Equity" in the audited annual consolidated financial statements included in its Annual Report on Form 10-K for the year ended December 31, 2020.

10. (LOSS) EARNINGS PER SHARE

A net loss cannot be diluted. Therefore, when the Company is in a net loss position, basic and diluted loss per common share are the same. If the Company achieves profitability, the denominator of a diluted earnings per common share calculation includes both the weighted-average number of shares outstanding and the number of common stock equivalents, if the inclusion of such common stock equivalents would be dilutive. Dilutive common stock equivalents potentially include warrants, stock options and non-vested restricted stock awards and units using the treasury stock method, along with the effect, if any, from outstanding convertible securities. The majority of the Company’s outstanding warrants to purchase common stock have participation rights to any dividends that may be declared in the future and are therefore considered to be participating securities. Participating securities have the effect of diluting both basic and diluted earnings per share during periods of income. During periods of loss, no loss is allocated to the participating securities since the holders have no contractual obligation to share in the losses of the Company.

Additionally, an entity that presents earnings per share shall recognize the value of the effect of an anti-dilution provision in an equity-classified freestanding financial instrument in the period the anti-dilution provision is triggered. That effect shall be treated as a deemed dividend and as a reduction of income available to common stockholders in basic earnings per share. The deemed dividend is added back to income available to common stockholders when applying the treasury stock method for diluted earnings per share.

For periods with net income, diluted net earnings per share is calculated by either (i) adjusting the weighted-average shares outstanding for the dilutive effect of common stock equivalents outstanding for the period as determined using the treasury stock method or (ii) the two-class method considering common stock equivalents, whichever is more dilutive. The two-class method is an earnings allocation formula that treats a participating security as having rights to earnings that otherwise would have been available to common stockholders. The two-class method was applied for the three months ended March 31, 2020. The two-class method was not applied for the three months ended March 31, 2021 as the Company’s participating securities do not have any obligation to absorb net losses.

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The following table illustrates the determination of (loss) earnings per share for each period presented:


	March 31,
	2021		2020
	(in thousands, except per share amounts)
Basic (Loss) Earnings Per Share:
Numerator:
Net (loss) income	$	(55,512)

SEC Form 10-Q filed by Sesen Bio, Inc.