aimt-10q_20170930.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

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: 001-37519

 

AIMMUNE THERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

45-2748244

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

8000 Marina Blvd., Suite 300

Brisbane, California  94005

(Address of principal executive offices including zip code)

Registrant’s telephone number, including area code: (650) 614-5220

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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

  (do not check if a smaller reporting company)

 

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 October 31, 2017, the registrant had 50,863,611 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


AIMMUNE THERAPEUTICS, INC.

TABLE OF CONTENTS

 

 

 

Page

 

 

 

PART I. – FINANCIAL INFORMATION

 

3

Item 1.

 

Condensed Consolidated Financial Statements (Unaudited)

 

3

 

 

Condensed Consolidated Balance Sheets as of September 30, 2017 and December 31, 2016

 

3

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Quarters and Nine Months Ended September 30, 2017 and 2016

 

4

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016

 

5

 

 

Notes to Condensed Consolidated Financial Statements

 

6

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

13

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

20

Item 4.

 

Controls and Procedures

 

20

 

 

 

 

 

PART II. – OTHER INFORMATION

 

21

Item 1.

 

Legal Proceedings

 

21

Item 1A.

 

Risk Factors

 

21

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

55

Item 3.

 

Defaults Upon Senior Securities

 

55

Item 4.

 

Mine Safety Disclosures

 

55

Item 5.

 

Other Information

 

55

Item 6.

 

Exhibits

 

55

SIGNATURES

 

57

 

 

 

 


 

PART I. – FINANCIAL INFORMATION

Item 1. Financial Statements

AIMMUNE THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

 

 

 

September 30,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

73,821

 

 

$

124,010

 

Short-term investments

 

 

138,209

 

 

 

124,921

 

Prepaid expenses and other current assets

 

 

6,063

 

 

 

2,749

 

Total current assets

 

 

218,093

 

 

 

251,680

 

Long-term investments

 

 

 

 

 

33,602

 

Property and equipment, net

 

 

14,940

 

 

 

10,391

 

Prepaid expenses and other assets

 

 

637

 

 

 

3,116

 

Total assets

 

$

233,670

 

 

$

298,789

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

4,301

 

 

$

1,427

 

Accrued liabilities

 

 

16,848

 

 

 

9,921

 

Other current liabilities

 

 

38

 

 

 

102

 

Total current liabilities

 

 

21,187

 

 

 

11,450

 

Other liabilities

 

 

1,894

 

 

 

1,367

 

Total liabilities

 

 

23,081

 

 

 

12,817

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock, par value $0.0001 per share—290,000 shares authorized as of

  September 30, 2017, and December 31, 2016; 50,695 and 50,204 shares issued and

  outstanding as of September 30, 2017, and December 31, 2016, respectively

  (including 82 and 200 shares subject to repurchase, legally issued and

  outstanding as of September 30, 2017, and December 31, 2016, respectively)

 

 

5

 

 

 

5

 

Additional paid-in capital

 

 

434,974

 

 

 

420,151

 

Accumulated other comprehensive loss

 

 

(74

)

 

 

(27

)

Accumulated deficit

 

 

(224,316

)

 

 

(134,157

)

Total stockholders’ equity

 

 

210,589

 

 

 

285,972

 

Total liabilities and stockholders’ equity

 

$

233,670

 

 

$

298,789

 

 

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

3


 

AIMMUNE THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands, except per share amounts)

(Unaudited)

 

 

 

Quarter Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

21,063

 

 

$

15,888

 

 

$

60,671

 

 

$

37,684

 

General and administrative

 

 

11,226

 

 

 

6,353

 

 

 

30,963

 

 

 

18,542

 

Total operating expenses

 

 

32,289

 

 

 

22,241

 

 

 

91,634

 

 

 

56,226

 

Loss from operations

 

 

(32,289

)

 

 

(22,241

)

 

 

(91,634

)

 

 

(56,226

)

Interest income, net

 

 

497

 

 

 

155

 

 

 

1,475

 

 

 

478

 

Net loss

 

$

(31,792

)

 

$

(22,086

)

 

$

(90,159

)

 

$

(55,748

)

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on investments

 

 

61

 

 

 

(17

)

 

 

(47

)

 

 

102

 

Comprehensive loss

 

$

(31,731

)

 

$

(22,103

)

 

$

(90,206

)

 

$

(55,646

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share, basic and diluted

 

$

(0.63

)

 

$

(0.53

)

 

$

(1.79

)

 

$

(1.33

)

Weighted average shares used in computing net loss per common

  share, basic and diluted

 

 

50,458

 

 

 

41,997

 

 

 

50,254

 

 

 

41,831

 

 

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

4


 

AIMMUNE THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

For the Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(90,159

)

 

$

(55,748

)

Adjustments to reconcile net loss to net cash used in operating activities

 

 

 

 

 

 

 

 

Depreciation expense

 

 

703

 

 

 

393

 

Stock-based compensation expense

 

 

11,871

 

 

 

9,093

 

Amortization of premium on investment securities

 

 

477

 

 

 

748

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(835

)

 

 

4,422

 

Accounts payable

 

 

2,874

 

 

 

(393

)

Accrued liabilities

 

 

6,927

 

 

 

7,131

 

Other liabilities

 

 

464

 

 

 

352

 

Net cash used in operating activities

 

 

(67,678

)

 

 

(34,002

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(5,252

)

 

 

(6,725

)

Purchase of investments

 

 

(109,391

)

 

 

(103,537

)

Maturities of investments

 

 

129,180

 

 

 

143,697

 

Net cash provided by investing activities

 

 

14,537

 

 

 

33,435

 

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Net cash proceeds from exercise of stock options, including early exercise

 

 

2,952

 

 

 

801

 

Net cash provided by financing activities

 

 

2,952

 

 

 

801

 

Net increase (decrease) in cash and cash equivalents

 

 

(50,189

)

 

 

234

 

Cash and cash equivalents at the beginning of the period

 

 

124,010

 

 

 

76,677

 

Cash and cash equivalents at the end of the period

 

$

73,821

 

 

$

76,911

 

 

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

 

 

5


 

AIMMUNE THERAPEUTICS, INC.

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2017

(Unaudited)

 

1. Formation and Business of the Company

Aimmune Therapeutics, Inc., or the Company, is a clinical-stage biopharmaceutical company advancing a new therapeutic approach, including the development of proprietary product candidates, for the treatment of peanut and other food allergies. Our therapeutic approach, which we refer to as Characterized Oral Desensitization Immunotherapy, or CODITTM, is a therapeutic approach designed to desensitize patients to food allergens using rigorously characterized biologic products, defined treatment protocols and tailored support services. We are headquartered in Brisbane, California, and were incorporated in the state of Delaware on June 24, 2011.

Since inception, we have incurred net losses and negative cash flows from operations. During the quarter and nine months ended September 30, 2017, we incurred a net loss of $31.8 million and $90.2 million, respectively, and during the nine months ended September 30, 2017, we used $67.7 million of cash in operations. As of September 30, 2017, we had an accumulated deficit of $224.3 million, and we do not expect to experience positive cash flows in the near future. As of September 30, 2017, we had cash, cash equivalents and investments of $212.0 million. We believe that our existing capital resources will be sufficient to fund our planned operations for the next 12 months and through expected regulatory submissions for AR101, our lead CODITTM product candidate, and into 2019. We have financed our operations to date primarily through private placements of our equity securities and our initial public offering, or IPO, of common stock in August 2015. Our ability to continue to meet our obligations and to achieve our business objectives is dependent upon a number of factors, which include raising additional capital, the successful and timely completion of our clinical trials, our ability to control expenses, obtaining U.S. Food and Drug Administration, or FDA, and European Medicines Agency, or EMA, approval, and generating sufficient revenue in the United States and Europe. Failure to obtain FDA and EMA approval, commercialize our lead product candidate, manage discretionary expenditures, or raise additional financing, as required, may adversely impact our ability to achieve our intended business objectives.

2. Summary of Significant Accounting Policies

Basis of Preparation

The accompanying condensed consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles, or GAAP, in the United States and applicable rules and regulations of the Securities and Exchange Commission, or SEC, regarding interim financial reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP have been condensed or omitted, and accordingly the balance sheet as of December 31, 2016, has been derived from audited consolidated financial statements at that date but does not include all of the information required by U.S. GAAP for complete financial statements. These condensed consolidated financial statements have been prepared on the same basis as our annual financial statements and, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) that are necessary for a fair presentation of our financial information. The results of operations for the quarter and nine months ended September 30, 2017, are not necessarily indicative of the results to be expected for the year ending December 31, 2017, or for any other interim period or for any other future year. We operate in one reportable segment.

The accompanying condensed consolidated financial statements and related financial information should be read in conjunction with the audited consolidated financial statements and the related notes thereto for the year ended December 31, 2016, included in our Annual Report on Form 10-K filed with the SEC.

Basis of Consolidation

The accompanying condensed consolidated financial statements include the accounts of our wholly-owned subsidiaries. All significant intercompany transactions have been eliminated.

Use of Estimates

The preparation of the accompanying condensed consolidated financial statements in accordance with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of costs and expenses during the reporting period. We base our estimates and assumptions on historical experience when available and on various factors that we believe to be reasonable under the circumstances. We evaluate our estimates and assumptions on an ongoing basis. Our actual results could differ from these estimates under different assumptions or conditions.

6


 

Significant Accounting Policies

There have been no significant changes to the accounting policies during the quarter and nine months ended September 30, 2017, as compared to the significant accounting policies described in Note 2 of the “Notes to Financial Statements” in our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016, except as disclosed below.

Recently Adopted Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or ASU, No. 2016-09, Compensation—Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of accounting for share-based payment transactions including the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and accounting for forfeitures. Upon our adoption of the new standard for fiscal year 2017, all excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards are treated as discrete items in the reporting period in which they occur. We recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period. We applied the modified retrospective approach upon adoption, and prior periods have not been adjusted. As a result, we have established a net operating loss deferred tax asset of $1.2 million to account for prior period excess tax benefits through retained earnings; however, an offsetting valuation allowance of $1.2 million has also been established through retained earnings because it is not more likely than not that the deferred tax asset will be realized due to historical and expected future losses, such that there is no impact on our condensed consolidated financial statements.  Additionally, as allowed by the standard, we elected to continue to estimate potential forfeitures.

Recently Issued Accounting Pronouncements Not Yet Adopted

In May 2017, the FASB issued ASU 2017-09, Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting, which provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The guidance establishes that an entity should account for the effects of a modification to the terms or conditions of a share-based payment award, unless all three of the following conditions are met: (a) the fair value of the modified award is the same as the fair value of the original award immediately before the modification, (b) the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the modification, and (c) the classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the original award was modified. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 31, 2017, and early adoption is permitted. We are currently evaluating the impact the adoption of this new standard will have on our consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The standard is effective for interim and annual periods beginning after December 15, 2018, with early adoption permitted. The new standard is expected to impact our consolidated financial statements as we have certain operating lease arrangements for which we are the lessee. We are currently evaluating the impact the adoption of this new standard will have on our consolidated financial statements.

 

3. Available-for-Sale Securities and Fair Value Measurements

We define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

7


 

Our valuation techniques are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect our market assumptions. We classify these inputs into the following hierarchy:

 

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date;

 

Level 2—Inputs are observable, unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the related assets or liabilities; and

 

Level 3—Unobservable inputs that are significant to the measurement of the fair value of the assets or liabilities that are supported by little or no market data.

The following tables set forth our financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

 

 

 

September 30, 2017

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

38,725

 

 

$

 

 

$

 

 

$

38,725

 

Corporate securities

 

 

 

 

 

906

 

 

 

 

 

 

906

 

Commercial paper

 

 

 

 

 

31,190

 

 

 

 

 

 

31,190

 

US government securities

 

 

 

 

 

3,000

 

 

 

 

 

 

3,000

 

Total cash and cash equivalents

 

$

38,725

 

 

$

35,096

 

 

$

 

 

$

73,821

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency securities

 

$

 

 

$

13,421

 

 

$

 

 

$

13,421

 

Corporate securities

 

 

 

 

 

39,167

 

 

 

 

 

 

39,167

 

Commercial paper

 

 

 

 

 

27,113

 

 

 

 

 

 

27,113

 

U.S. government securities

 

 

 

 

 

58,508

 

 

 

 

 

 

58,508

 

Total investments

 

$

 

 

$

138,209

 

 

$

 

 

$

138,209

 

 

 

 

December 31, 2016

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

107,977

 

 

$

 

 

$

 

 

$

107,977

 

Commercial paper

 

 

 

 

 

16,033

 

 

 

 

 

 

16,033

 

Total cash and cash equivalents

 

$

107,977

 

 

$

16,033

 

 

$

 

 

$

124,010

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency securities

 

$

 

 

$

45,571

 

 

$

 

 

$

45,571

 

Corporate securities

 

 

 

 

 

22,031

 

 

 

 

 

 

22,031

 

Commercial paper

 

 

 

 

 

8,669

 

 

 

 

 

 

8,669

 

U.S. government securities

 

 

 

 

 

82,252

 

 

 

 

 

 

82,252

 

Total investments

 

$

 

 

$

158,523

 

 

$

 

 

$

158,523

 

 

Our valuation techniques used to measure the fair value of money market funds were derived from quoted prices in active markets for identical assets. The valuation techniques used to measure the fair value of investments, all of which have counterparties with high credit ratings, were valued based on quoted market prices or model-driven valuations using significant inputs derived from or corroborated by observable market data. Investments are carried at fair value. During the quarter and nine months ended September 30, 2017 and 2016, there were no transfers between Level 1 and Level 2 of the fair value hierarchy.

8


 

Available-for-sale investments are carried at fair value and are included in the tables above. The aggregate market value, cost basis, and gross unrealized gains and losses of available-for-sale investments by security type, classified in cash equivalents and investments, as of September 30, 2017 and December 31, 2016, are as follows (in thousands):

 

 

 

September 30, 2017

 

 

 

Amortized

Cost

 

 

Gross

Unrealized Gains

 

 

Gross

Unrealized Losses

 

 

Total

Fair Value

 

Agency securities

 

$

13,434

 

 

$

 

 

$

(13

)

 

$

13,421

 

Corporate securities

 

 

40,086

 

 

 

 

 

 

(13

)

 

 

40,073

 

Commercial paper

 

 

58,303

 

 

 

 

 

 

 

 

 

58,303

 

U.S. government securities

 

 

61,557

 

 

 

 

 

 

(49

)

 

 

61,508

 

Total available-for-sale investments

 

$

173,380

 

 

$

 

 

$

(75

)

 

$

173,305

 

 

 

 

December 31, 2016

 

 

 

Amortized

Cost

 

 

Gross

unrealized gains

 

 

Gross

unrealized losses

 

 

Total

fair value

 

Agency securities

 

$

45,591

 

 

$

5

 

 

$

(25

)

 

$

45,571

 

Corporate securities

 

 

22,050

 

 

 

2

 

 

 

(21

)

 

 

22,031

 

Commercial paper

 

 

24,702

 

 

 

 

 

 

 

 

 

24,702

 

U.S. government securities

 

 

82,240

 

 

 

15

 

 

 

(3

)

 

 

82,252

 

Total available-for-sale investments

 

$

174,583

 

 

$

22

 

 

$

(49

)

 

$

174,556

 

 

At September 30, 2017, all of the available-for-sale securities have contractual maturities within one year. We periodically review our available-for-sale investments for other-than-temporary impairment loss. We consider factors such as the duration, severity and the reason for the decline in value, the potential recovery period and our intent to sell. For debt securities, we also consider whether (i) it is more likely than not that we will be required to sell the debt securities before recovery of their amortized cost basis, and (ii) the amortized cost basis cannot be recovered as a result of credit losses. During the quarter and nine months ended September 30, 2017 and 2016, we did not recognize any other-than-temporary impairment losses. All marketable securities with unrealized losses have been in a loss position for less than twelve months.

 

 

4. Balance Sheet Components

Property and Equipment, Net

Property and equipment, net consists of the following (in thousands):

 

 

 

September 30, 2017

 

 

December 31, 2016

 

Computer equipment

 

$

1,211

 

 

$

850

 

Leased equipment

 

 

100

 

 

 

 

Furniture and equipment

 

 

1,132

 

 

 

776

 

Manufacturing equipment

 

 

805

 

 

 

703

 

Leasehold improvements

 

 

2,999

 

 

 

 

Building

 

 

688

 

 

 

 

Construction in progress

 

 

9,351

 

 

 

8,749

 

Property and equipment, gross

 

 

16,286

 

 

 

11,078

 

Less: accumulated depreciation

 

 

(1,346

)

 

 

(687

)

Property and equipment, net

 

$

14,940

 

 

$

10,391

 

 

9


 

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

 

 

September 30, 2017

 

 

December 31, 2016

 

Compensation and benefits

 

$

4,155

 

 

$

3,195

 

Research and development

 

 

10,250

 

 

 

5,154

 

Professional and consulting

 

 

2,401

 

 

 

967

 

Other

 

 

42

 

 

 

605

 

Total accrued liabilities

 

$

16,848

 

 

$

9,921

 

 

5. Commitments and Contingencies

Facility Leases

In March 2015, we entered into a lease for our corporate headquarters in Brisbane, California for 11,665 square feet of office space. In August 2015, we entered into a lease amendment, pursuant to which we leased an additional 26,355 square feet of office space. In June 2017, we entered into a second lease amendment, under which we leased an additional 14,841 square feet of office space. The term for the additional space commences on January 1, 2018, or later upon the delivery of the premises to us, and terminates on June 30, 2024. Additionally, the term of the existing office space has been extended to be coterminous with the new space. No additional security deposit was required, and we are responsible for the operating expenses over base operating expenses as defined in the original lease agreement.

Total future aggregate minimum lease payments under our current operating leases, including the additional space under the second lease amendment, assuming that we take possession of the additional space on January 1, 2018, are as follows (in thousands):

 

Year Ending December 31,

 

 

 

 

2018

 

$

2,545

 

2019

 

 

2,557

 

2020

 

 

2,645

 

2021

 

 

2,724

 

2022

 

 

2,805

 

and after

 

 

4,611

 

Total

 

$

17,887

 

 

Indemnifications

We indemnify each of our officers and directors for certain events or occurrences, subject to certain limits, while the officer or director is or was serving at the Company’s request in such capacity, as permitted under Delaware law and in accordance with its certificate of incorporation and bylaws. The term of the indemnification period lasts as long as an officer or a director may be subject to any proceeding arising out of acts or omissions of such officer or director in such capacity. The maximum amount of potential future indemnification is unlimited; however, we currently hold director and officer liability insurance. This insurance allows the transfer of risk associated with our exposure and may enable us to recover a portion of any future amounts paid. We believe that the fair value of these indemnification obligations is minimal. Accordingly, we have not recognized any liabilities relating to these obligations for any period.

Legal

We are currently not a party to any material legal proceedings. During the normal course of business, we may be a party to legal claims that may not be covered by insurance. We do not believe that any such claims would have a material impact on our consolidated financial statements.

 

 

6. Stock-Based Compensation

Equity Incentive Plan

10


 

In January 2013, we adopted our Stock Plan (the “2013 Plan”) and in July 2015, we adopted a new Stock Plan (the “2015 Plan”). Upon consummation of our IPO, the 2013 Plan was terminated and no further shares are reserved for issuance under the 2013 Plan.  As of September 30, 2017, there were 4.5 million shares reserved for future issuance under our 2015 Plan. As of September 30, 2017, there were 6.9 million shares subject to outstanding options under our Plans.

The 2013 Plan allowed employees to exercise stock options in exchange for cash before the requisite service was provided (e.g., before the award is vested under its original terms); however, such arrangements permit us to subsequently repurchase such shares at the exercise price if the vesting conditions are not satisfied. Such an exercise is not substantive for accounting purposes. Therefore, the payment received by us for the exercise price is recognized as an early exercise liability on the consolidated balance sheets and will be transferred to common stock and additional paid-in capital as such shares vest. As of September 30, 2017 and December 31, 2016, 82,202 and 199,538 unvested shares, respectively, were legally issued and outstanding. In connection with these unvested shares, we have recorded an early exercise liability as of September 30, 2017, of $11,900, which is included in other current liabilities in the condensed consolidated balance sheet. These shares are excluded from basic and diluted net loss per share until our repurchase right lapses and the shares are no longer subject to the repurchase feature.

Option activity under the 2015 Plan and 2013 Plan is set forth below:

 

 

 

Options Outstanding

 

 

 

Number of

Options

and Unvested

Shares

 

 

Weighted-

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Contractual Life

(in years)

 

 

Aggregate

Intrinsic

Value

(in

thousands)

 

Balance, December 31, 2016

 

 

5,628,907

 

 

$

9.50

 

 

 

9.02

 

 

$

61,617

 

Options granted

 

 

2,235,800

 

 

$

19.83

 

 

 

 

 

 

 

 

 

Options exercised and shares vested

 

 

(590,657

)

 

$

5.72

 

 

 

 

 

 

 

 

 

Options cancelled

 

 

(343,499

)

 

$

8.25

 

 

 

 

 

 

 

 

 

Balance, September 30, 2017

 

 

6,930,551

 

 

$

13.44

 

 

 

8.33

 

 

$

79,798

 

Options vested and expected to vest as of

   September 30, 2017

 

 

6,579,648

 

 

$

13.25

 

 

 

8.29

 

 

$

77,060

 

Options exercisable as of September 30, 2017

 

 

3,352,360

 

 

$

8.26

 

 

 

7.45

 

 

$

55,414

 

 

The aggregate intrinsic values of options outstanding, exercisable, and vested and expected to vest were calculated as the difference between the exercise price of the options and the market price for shares of our common stock as of September 30, 2017. The 2013 Plan provided for early exercise, therefore, all our outstanding stock options issued under that plan are exercisable.

As of September 30, 2017 and 2016, there was $44.3 million and $29.2 million, respectively, of unrecognized stock-based compensation expense related to stock options, which is expected to be recognized over the weighted-average remaining vesting period of 2.7 years and 2.9 years, respectively.

Restricted stock unit, or RSU, activity under the 2015 Plan is set forth below:

 

 

 

Shares

 

 

Weighted

Average Grant

Date Fair

Value

 

Unvested Balance, December 31, 2016

 

 

17,000

 

 

$

14.01

 

Awarded

 

 

 

 

 

 

Released

 

 

(17,000

)

 

 

14.01

 

Forfeited

 

 

 

 

 

 

Unvested Balance, September 30, 2017

 

 

 

 

 

 

RSUs are measured based on the fair market value of the underlying stock on the date of grant and recognized as expense on a straight-line basis over the employee’s requisite service period (generally the vesting period).

11


 

Valuation Assumptions

The weighted-average assumptions used to estimate the fair value of stock options using the Black-Scholes option valuation model and the resulting weighted average fair value of stock options granted were as follows:

 

 

 

Quarter Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Expected term (in years)

 

 

6.0

 

 

 

6.1

 

 

 

6.0

 

 

 

6.0

 

Expected volatility

 

 

71.1

%

 

 

75.9

%

 

 

73.0

%

 

 

74.5

%

Risk free interest rate

 

 

2.1

%

 

 

1.1

%

 

 

2.1

%

 

 

1.7

%

Dividend yield

 

 

%

 

 

%

 

 

%

 

 

%

Weighted average estimated fair value

 

$

14.57

 

 

$

9.61

 

 

$

12.89

 

 

$

10.19

 

 

Stock-Based Compensation Expense

Stock-based compensation expense, net of estimated forfeitures, reflected in the condensed consolidated statements of comprehensive loss is as follows (in thousands):

 

 

 

Quarter Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Research and development

 

$

1,305

 

 

$

1,493

 

 

$

3,482

 

 

$

3,710

 

General and administrative

 

 

2,774

 

 

 

1,995

 

 

 

8,389

 

 

 

5,383

 

Total stock-based compensation expense

 

$

4,079

 

 

$

3,488

 

 

$

11,871

 

 

$

9,093

 

 

 

7. Net Loss per Share

Basic net loss per share is calculated based on the weighted-average number of common shares outstanding during the periods presented. For periods in which we have generated a net loss, basic and diluted net loss per share are the same due to the requirement to exclude potentially dilutive securities, consisting of common shares underlying outstanding stock options and restricted stock units, which would have an anti-dilutive effect on net loss per share.

The following common stock equivalents were excluded from the computation of diluted net loss per share for the periods presented because their inclusion would have been antidilutive:

 

 

 

Quarter Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2017

 

 

2016

 

 

2017

 

 

2016

 

Stock options

 

 

6,930,551

 

 

 

5,956,839

 

 

 

6,930,551

 

 

 

5,956,839

 

Restricted stock units

 

 

 

 

 

17,000

 

 

 

 

 

 

17,000

 

 

8. Related Party Transaction

In June 2017, Mark McDade, a member of our Board of Directors, joined the Board of Directors of MyHealthTeams, a private company that creates social networks for people living with chronic conditions by partnering with pharmaceutical and healthcare companies. We entered into an agreement with MyHealthTeams in 2015 under which they provide services to us. During the quarter and nine months ended September 30, 2017, our payments to MyHealthTeams pursuant to such agreement were $0.1 million. During the quarter and nine months ended September 30, 2016, our payments to MyHealthTeams pursuant to such agreement were zero and $0.2 million, respectively. At September 30, 2017 and December 31, 2016, the balance of the accrued liability under the MyHealthTeams agreement was $0.2 million and zero, respectively.

9. Subsequent Event

On October 16, 2017, we announced a clinical collaboration with Regeneron and its strategic alliance collaborator, Sanofi, to study AR101 treatment with adjunctive dupilumab in peanut-allergic patients in a Phase 2 clinical trial, which will evaluate if adjunctive treatment with AR101 and dupilumab can help further protect people with peanut allergies. Regeneron will sponsor the clinical trial, and we will provide clinical supply of AR101 and food challenge materials. The planned Phase 2 clinical trial is expected to begin in 2018.

12


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and related notes included in Part 1, Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes thereto for the year ended December 31, 2016, included in our Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission on March 15, 2017. This discussion and other parts of this report contain forward-looking statements that involve risks and uncertainties, such as statements of our plans, objectives, expectations and intentions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in the section of this report titled “Risk Factors.” Except as may be required by law, we assume no obligation to update these forward-looking statements or the reasons that results could differ from these forward-looking statements.

Overview

We are a clinical-stage biopharmaceutical company advancing a new therapeutic approach, including the development of proprietary product candidates, for the treatment of peanut and other food allergies. It is estimated that over 30 million people in the United States and Europe have a food allergy, with peanut allergy being the most prevalent and most commonly associated with severe outcomes and life-threatening events. There are currently no approved medical therapies to cure food allergies or prevent their symptoms. Patients with food allergies are typically counseled to practice strict dietary avoidance. When accidental exposure to food allergens invokes a serious allergic reaction, rescue therapies, such as antihistamines or injectable epinephrine, are the only recourse available. Our therapeutic approach, which we refer to as Characterized Oral Desensitization ImmunoTherapy, or CODITTM, is designed to desensitize patients to food allergens and thereby reduce the risk of having an allergic reaction upon accidental exposure, or reduce symptom severity should an allergic reaction occur. CODIT is intended to reduce meaningfully the burden and anxiety experienced by food-allergic patients and their families.

Our lead CODIT product candidate, AR101, is an investigational biologic for the treatment of patients with peanut allergy, which affects approximately three million patients in the United States and three million patients in Europe. AR101 has received Fast Track and Breakthrough Therapy Designations for the treatment of patients 4-17 years from the United States Food and Drug Administration, or FDA. Our initial target patient population is children and adolescents in the 4-17 age group, which we estimate will reach approximately 1.6 million patients in the United States alone by 2018. We have completed a double-blind placebo-controlled Phase 2 trial of AR101 in 55 patients ages 4-21 years, have analyzed longer-term safety and efficacy data from our ongoing open-label Phase 2 trial and have received feedback from regulatory authorities, including the FDA and the European Medicines Agency, or EMA, providing guidance on our Phase 3 registration program. In late 2015, we initiated a Phase 3 efficacy trial of AR101 in the United States, Canada and Europe, which we refer to as the PALISADE (Peanut Allergy Oral Immunotherapy Study of AR101 for Desensitization in Children and Adults) trial. We completed global enrollment of 554 patients ages 4-49 in November 2016 and anticipate final study visits will be completed for the PALISADE trial around year-end 2017. In December 2016, we began enrolling eligible patients who had completed PALISADE into a related open-label roll-over trial, which we refer to as the ARC004 trial. In May 2017, we enrolled the first patient in our real-world experience safety trial of AR101 in the United States and Canada in patients ages 4-17, which we refer to as the RAMSES (Real-World AR101 Market-Supporting Experience Study in Peanut Allergic Children Ages 4-17 Years) trial. In addition, in July 2017, we enrolled the first patient in our European Phase 3 efficacy trial designed with a higher efficacy bar in the same age group, which we refer to as the ARTEMIS (AR101 Trial in Europe Measuring oral Immunotherapy Success) trial. Based on discussions with the FDA in the beginning of 2017, we anticipate that the safety database for a Biologics License Application, or BLA, will need to include data from at least 600 patients ages 4-17 treated with AR101 at the target maintenance dose of 300 mg per day. We expect to meet this requirement with patients from the PALISADE, ARC004 and RAMSES trials. In Europe, we expect that data from the PALISADE, ARC004, RAMSES and ARTEMIS trials will form the basis for a Marketing Authorization Application, or MAA, filing with the European Medicines Agency, or EMA. We expect to have topline data available from our PALISADE trial in the first quarter of 2018, and we intend to file a BLA in the United States and an MAA in the European Union in late 2018.

We maintain worldwide commercial rights to all of our product candidates, including AR101 and, if approved, currently intend to commercialize in the United States and Europe with our own specialty sales force calling on allergists in the United States and allergy-focused clinicians in major European markets.

Since commencing our operations in 2011, substantially all of our efforts have been focused on research, development and the advancement of our lead CODIT product candidate, AR101. We have not generated any revenue from product sales and, as a result, we have incurred significant losses. We incurred a net loss of $31.8 million and $90.2 million for the quarter and nine months ended September 30, 2017, respectively, and used $67.7 of cash in operations for the nine months ended September 30, 2017. As of September 30, 2017, our accumulated deficit was $224.3 million. We expect to continue to incur losses for the foreseeable future, and we anticipate these losses will increase as we continue our development of, seek regulatory approval for, and begin to commercialize AR101, and as we develop other product candidates.

13


 

We do not expect to generate revenue from product sales unless and until we successfully complete development of, obtain regulatory approval for, and begin to commercialize one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we anticipate that we will need to raise additional capital to fund our future operations. Until such time that we can generate substantial revenue from product sales, if ever, we expect to finance our operating activities through a combination of equity offerings and debt financings and we may seek to raise additional capital through strategic collaborations. However, we may be unable to raise additional funds or enter into such arrangements when needed on favorable terms, or at all, which would have a negative impact on our financial condition and could force us to delay, limit, reduce or terminate our development programs or commercialization efforts or grant to others rights to develop or market product candidates that we would otherwise prefer to develop and market ourselves. Failure to receive additional funding could cause us to cease operations, in part or in full. Furthermore, even if we believe we have sufficient funds for our current or future operating plans, we may seek additional capital due to favorable market conditions or strategic considerations.

We currently utilize contract manufacturers for all of our manufacturing activities. In June 2015, we entered into a lease for a manufacturing facility in Clearwater, Florida. In June 2017, we completed construction of the manufacturing facility within the leased building, which we intend to handle full-scale cGMP (current Good Manufacturing Practices) commercial production of AR101, if approved, and supply future clinical trials of AR101. We anticipate that this manufacturing facility will be operational in the first half of 2018. We plan to continue to rely on the contract manufacturer that is located at the same site to manage the operations of this new manufacturing facility. Additionally, we currently utilize specialized clinical vendors, clinical trial sites, consultants, and clinical research organizations, or CROs, to ensure the proper and timely conduct of our clinical trials, and we do not yet have a sales organization. We expect to significantly increase our investment in our manufacturing process and commercial organization as we prepare for the filing of a BLA with the FDA and a MAA with the EMA and prepare for a possible commercial launch of AR101.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles, or GAAP, in the United States. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are 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. Actual results may differ from these estimates under different assumptions or conditions.

There have been no new policies or significant changes to our critical accounting policies as disclosed in the critical accounting policies described in our Annual Report on Form 10-K for the year ended December 31, 2016.

Recent Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies of the Notes to Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q for additional information.

Components of Results of Operations

Research and Development Expenses

The largest component of our total operating expenses has historically been our investment in research and development activities. Research and development expenses consist primarily of external clinical-related expenses, employee-related costs, stock-based compensation expense, and facilities and other costs, which include the following:

 

External clinical-related expenses include costs incurred to conduct research, such as the discovery and development of our product candidates; costs related to the production of clinical supplies, including fees paid to contract manufacturers; fees paid to consultants and vendors, including clinical research organizations in conjunction with implementing and monitoring our clinical trials and acquiring and evaluating clinical trial data, including all related fees, such as for investigator grants, patient screening fees, laboratory work and statistical compilation and analysis; costs for scientific conferences and meetings; and costs related to compliance with drug development regulatory requirements.

 

Employee-related costs include salaries, bonuses, severance and benefits for personnel in our research and development functions.

14


 

 

Stock-based compensation expense is expense associated with our equity plans for awards to personnel in our research and development functions.

 

Facilities and other costs include facilities-related rent, depreciation and other allocable expenses, which include general and administrative support functions and general supplies for our research and development activities.

We recognize all research and development expenses as they are incurred. Clinical trial, contract manufacturing and other development costs incurred by third parties are expensed as the contracted work is performed.

General and Administrative Expenses

General and administrative expenses include employee-related costs, stock-based compensation expense, external professional services expenses, and facilities and other costs. Employee-related costs include salaries, bonuses, severance and benefits for personnel in our general and administrative functions. Stock-based compensation expense is expense associated with our equity plans for awards to personnel in our general and administrative functions. External professional services expenses consist of legal, accounting, and audit services and other consulting fees. Facilities and other costs consist of facilities-related rent, depreciation, and other allocable expenses, which include general and administrative support functions, general supplies and insurance costs.

Results of Operations

Comparison of the Quarters Ended September 30, 2017 and 2016

 

 

 

Quarter Ended September 30,

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

 

 

(In thousands)

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

21,063

 

 

$

15,888

 

 

$

5,175

 

 

 

33

%

General and administrative

 

 

11,226

 

 

 

6,353

 

 

 

4,873

 

 

 

77

%

Total operating expenses

 

 

32,289

 

 

 

22,241

 

 

 

10,048

 

 

 

45

%

Loss from operations

 

 

(32,289

)

 

 

(22,241

)

 

 

(10,048

)

 

 

45

%

Interest income, net

 

 

497

 

 

 

155

 

 

 

342

 

 

 

221

%

Net loss

 

$

(31,792

)

 

$

(22,086

)

 

$

(9,706

)

 

 

44

%

 

Research and Development Expenses

The following table summarizes our research and development expenses incurred during the quarters ended September 30, 2017 and 2016:

 

 

 

Quarter Ended September 30,

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

 

 

(In thousands)

 

External clinical-related expenses

 

$

13,881

 

 

$

11,609

 

 

$

2,272

 

 

 

20

%

Employee-related costs

 

 

4,508

 

 

 

2,180

 

 

 

2,328

 

 

 

107

%

Stock-based compensation expense

 

 

1,305

 

 

 

1,493

 

 

 

(188

)

 

 

(13

)%

Facilities and other costs

 

 

1,369

 

 

 

606

 

 

 

763

 

 

 

126

%

Total research and development expenses

 

$

21,063

 

 

$

15,888

 

 

$

5,175

 

 

 

33

%

 

Research and development expenses increased by $5.2 million for the quarter ended September 30, 2017, compared to the quarter ended September 30, 2016, primarily due to increased external clinical-related expenses, employee-related costs and facilities and other costs. External clinical-related costs increased primarily due to the progression of PALISADE, enrollment of patients in ARC004 and RAMSES, and contract manufacturing related costs of AR101 for clinical trials. Employee-related costs increased primarily due to increased headcount to support continued development of AR101. Facilities and other costs increased primarily due to increased rent expense from our new facility leases and other allocable costs due to increased headcount.

We expect research and development expenses to continue to increase as our clinical trials related to the AR101 development program progress, including the initiation and enrollment of patients in ARTEMIS and other AR101 studies, and as we develop additional CODIT product candidates.

15


 

General and Administrative Expenses

The following table summarizes our general and administrative expenses incurred during the quarters ended September 30, 2017 and 2016: 

 

 

 

Quarter Ended September 30,

 

 

 

 

 

 

 

 

 

 

 

2017

 

 

2016

 

 

$ Change

 

 

% Change

 

 

 

(In thousands)

 

Employee-related costs

 

$

3,578

 

 

$

1,838

 

 

$

1,740

 

 

 

95

%

Stock-based compensation expense

 

 

2,774