aimt-10q_20180331.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 March 31, 2018

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 April 30, 2018, the registrant had 58,095,408 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 March 31, 2018 and December 31, 2017

 

3

 

 

Condensed Consolidated Statements of Comprehensive Loss for the Quarters Ended March 31, 2018 and 2017

 

4

 

 

Condensed Consolidated Statements of Cash Flows for the Quarters Ended March 31, 2018 and 2017

 

5

 

 

Notes to Condensed Consolidated Financial Statements

 

6

Item 2.

 

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

 

14

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

21

Item 4.

 

Controls and Procedures

 

21

 

 

 

 

 

PART II. – OTHER INFORMATION

 

22

Item 1.

 

Legal Proceedings

 

22

Item 1A.

 

Risk Factors

 

22

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

58

Item 3.

 

Defaults Upon Senior Securities

 

58

Item 4.

 

Mine Safety Disclosures

 

58

Item 5.

 

Other Information

 

58

Item 6.

 

Exhibits

 

58

SIGNATURES

 

60

 

 

 

 


 

PART I. – FINANCIAL INFORMATION

Item 1. Financial Statements

AIMMUNE THERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)

 

 

 

March 31,

 

 

December 31,

 

 

 

2018

 

 

2017

 

 

 

(unaudited)

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

209,324

 

 

$

73,487

 

Short-term investments

 

 

112,560

 

 

 

108,943

 

Prepaid expenses and other current assets

 

 

8,413

 

 

 

6,681

 

Total current assets

 

 

330,297

 

 

 

189,111

 

Long-term investments

 

 

9,863

 

 

 

-

 

Property and equipment, net

 

 

21,021

 

 

 

17,205

 

Prepaid expenses and other assets

 

 

664

 

 

 

618

 

Total assets

 

$

361,845

 

 

$

206,934

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

6,252

 

 

$

5,095

 

Accrued liabilities

 

 

24,127

 

 

 

21,478

 

Other current liabilities

 

 

33

 

 

 

26

 

Total current liabilities

 

 

30,412

 

 

 

26,599

 

Other liabilities

 

 

2,341

 

 

 

2,530

 

Total liabilities

 

 

32,753

 

 

 

29,129

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

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

  March 31, 2018, and December 31, 2017; 58,024 and 51,091 shares issued and

  outstanding as of March 31, 2018, and December 31, 2017, respectively

  (including 12 and 47 shares subject to repurchase, legally issued and

  outstanding as of March 31, 2018, and December 31, 2017, respectively)

 

 

6

 

 

 

5

 

Additional paid-in capital

 

 

644,193

 

 

 

443,390

 

Accumulated other comprehensive loss

 

 

(125

)

 

 

(108

)

Accumulated deficit

 

 

(314,982

)

 

 

(265,482

)

Total stockholders’ equity

 

 

329,092

 

 

 

177,805

 

Total liabilities and stockholders’ equity

 

$

361,845

 

 

$

206,934

 

 

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 March 31,

 

 

 

2018

 

 

2017

 

Operating expenses

 

 

 

 

 

 

 

 

Research and development

 

$

33,446

 

 

$

17,417

 

General and administrative

 

 

16,673

 

 

 

8,924

 

Total operating expenses

 

 

50,119

 

 

 

26,341

 

Loss from operations

 

 

(50,119

)

 

 

(26,341

)

Interest income, net

 

 

636

 

 

 

471

 

Loss before provision for income taxes

 

 

(49,483

)

 

 

(25,870

)

Provision for income taxes

 

 

17

 

 

 

 

Net loss

 

$

(49,500

)

 

$

(25,870

)

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

Unrealized losses on investments

 

 

(17

)

 

 

(95

)

Comprehensive loss

 

$

(49,517

)

 

$

(25,965

)

 

 

 

 

 

 

 

 

 

Net loss per common share, basic and diluted

 

$

(0.92

)

 

$

(0.52

)

Weighted average shares used in computing net loss per common

  share, basic and diluted

 

 

53,578

 

 

 

50,069

 

 

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)

 

 

 

Quarter Ended March 31,

 

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(49,500

)

 

$

(25,870

)

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

 

 

 

 

 

 

 

 

Depreciation expense

 

 

356

 

 

 

144

 

Stock-based compensation expense

 

 

7,607

 

 

 

3,593

 

Amortization of premium on investment securities

 

 

(25

)

 

 

240

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

(36

)

 

 

35

 

Accounts payable

 

 

(431

)

 

 

249

 

Accrued liabilities

 

 

2,448

 

 

 

(1,481

)

Other liabilities

 

 

(183

)

 

 

(14

)

Net cash used in operating activities

 

 

(39,764

)

 

 

(23,104

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(2,383

)

 

 

(900

)

Purchase of investments

 

 

(64,274

)

 

 

(55,419

)

Maturities of investments

 

 

50,802

 

 

 

33,009

 

Net cash used in investing activities

 

 

(15,855

)

 

 

(23,310

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from underwritten public offering, net of offering costs

 

 

189,463

 

 

 

 

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

 

 

1,993

 

 

 

1,118

 

Net cash provided by financing activities

 

 

191,456

 

 

 

1,118

 

Net increase (decrease) in cash and cash equivalents

 

 

135,837

 

 

 

(45,296

)

Cash and cash equivalents at the beginning of the period

 

 

73,487

 

 

 

124,010

 

Cash and cash equivalents at the end of the period

 

$

209,324

 

 

$

78,714

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

 

 

 

 

 

 

 

 

Property and equipment purchases included in accounts payable and accrued liabilities

 

$

1,788

 

 

$

 

Receivable for underwritten public offering

 

$

990

 

 

$

 

Receivable for stock option exercises

 

$

752

 

 

$

 

 

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

March 31, 2018

(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 ended March 31, 2018, we incurred a net loss of $49.5 million and used $39.8 million of cash in operations. As of March 31, 2018, we had an accumulated deficit of $315.0 million, and we do not expect to experience positive cash flows in the near future. As of March 31, 2018, we had cash, cash equivalents and investments of $331.7 million. We believe that our existing capital resources will be sufficient to fund our planned operations for at least the next 12 months and through expected regulatory submission of a Biologics License Application, or BLA, for AR101, our lead CODITTM product candidate. We have financed our operations to date primarily through private placements of our equity securities, our initial public offering, or IPO, of common stock in August 2015 and an underwritten public offering of common stock in February and March 2018. 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, 2017, 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 ended March 31, 2018, are not necessarily indicative of the results to be expected for the year ending December 31, 2018, 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, 2017, 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 ended March 31, 2018, as compared to the significant accounting policies described in Note 2 of the “Notes to Consolidated Financial Statements” in our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017.

Recently Adopted Accounting Pronouncements

In May 2017, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update, or 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 classifications of the original award immediately before the original award was modified. We adopted ASU 2017-09 in the first quarter of 2018. There was no material impact to our condensed consolidated financial statements as a result of adopting this standard.

In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows – Restricted Cash (Topic 230), which establishes that the statement of cash flows will show the changes in cash, cash equivalents and amounts generally described as restricted cash. As a result, entities will no longer have to determine how to classify transfers to and from restricted cash within the statement of cash flows. An entity will be required to reconcile the total cash, cash equivalents and amounts generally described as restricted cash on the statement of cash flows to the amounts in the balance sheet, and disclose the nature of any restrictions on its cash, cash equivalents or amounts generally described as restricted cash. We adopted ASU 2016-18 in the first quarter of 2018. There was no material impact to our condensed consolidated financial statements as a result of adopting this standard.

In October 2016, the FASB, issued ASU, 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers Other Than Inventory, which requires companies to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory. We adopted ASU 2016-16 in the first quarter of 2018. There was no material impact to our condensed consolidated financial statements as a result of adopting this standard.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. We adopted ASU 2016-15 in the first quarter of 2018. There was no material impact to our condensed consolidated financial statements as a result of adopting this standard.

Recently Issued Accounting Pronouncements Not Yet Adopted

 

In March 2017, the FASB issued ASU 2017-08, “Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities”. ASU 2017-08 amends the amortization period for certain purchased callable debt securities held at a premium by shortening the amortization period for the premium to the earliest call date. ASU 2017-08 will be effective for fiscal years beginning after December 15, 2018, with early adoption permitted. We are currently evaluating the impact that the adoption of ASU 2017-08 will have on our consolidated financial statements and related disclosures.

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires measurement and recognition of expected credit losses for financial assets held. ASU 2016-13 modifies the other-than-temporary impairment model for available-for-sale debt securities and requires an estimate of expected credit losses when the fair value is below the amortized cost of the asset. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. We are currently evaluating the impact that the adoption of ASU 2016-13 will have on our consolidated financial statements and related disclosures.

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. We are currently in the process of evaluating the impact the adoption of this new

7


 

standard will have on our consolidated financial statements and related disclosures; however, since we are lessee to certain leases for property whose terms exceed twelve months, we expect to report assets and liabilities related to these leases on our consolidated financial statements that have not been previously reported, once we adopt ASU 2016-02.

 

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.

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):

 

 

 

March 31, 2018

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

137,998

 

 

$

 

 

$

 

 

$

137,998

 

Agency securities

 

 

 

 

 

13,592

 

 

 

 

 

 

13,592

 

Commercial paper

 

 

 

 

 

57,734

 

 

 

 

 

 

57,734

 

Total cash and cash equivalents

 

$

137,998

 

 

$

71,326

 

 

$

 

 

$

209,324

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency securities

 

$

 

 

$

7,278

 

 

$

 

 

$

7,278

 

Corporate securities

 

 

 

 

 

36,609

 

 

 

 

 

 

36,609

 

Commercial paper

 

 

 

 

 

19,386

 

 

 

 

 

 

19,386

 

U.S. government securities

 

 

 

 

 

59,150

 

 

 

 

 

 

59,150

 

Total investments

 

$

 

 

$

122,423

 

 

$

 

 

$

122,423

 

 

 

 

December 31, 2017

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Cash and cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and money market funds

 

$

39,072

 

 

$

 

 

$

 

 

$

39,072

 

Corporate securities

 

 

 

 

 

999

 

 

 

 

 

 

999

 

Commercial paper

 

 

 

 

 

33,416

 

 

 

 

 

 

33,416

 

Total cash and cash equivalents

 

$

39,072

 

 

$

34,415

 

 

$

 

 

$

73,487

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agency securities

 

 

 

 

 

12,718

 

 

 

 

 

 

12,718

 

Corporate securities

 

 

 

 

 

28,345

 

 

 

 

 

 

28,345

 

Commercial paper

 

 

 

 

 

21,432

 

 

 

 

 

 

21,432

 

U.S. government securities

 

 

 

 

 

46,448

 

 

 

 

 

 

46,448

 

Total investments

 

$

 

 

$

108,943

 

 

$

 

 

$

108,943

 

 

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

8


 

or corroborated by observable market data. Investments are carried at fair value. During the quarters ended March 31, 2018 and 2017, there were no transfers between Level 1 and Level 2 of the fair value hierarchy.

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 March 31, 2018 and December 31, 2017, are as follows (in thousands):

 

 

 

March 31, 2018

 

 

 

Amortized

Cost

 

 

Gross

Unrealized Gains

 

 

Gross

Unrealized Losses

 

 

Total

Fair Value

 

Agency securities

 

$

20,881

 

 

$

 

 

$

(11

)

 

$

20,870

 

Corporate securities

 

 

36,666

 

 

 

1

 

 

 

(58

)

 

 

36,609

 

Commercial paper

 

 

77,120

 

 

 

 

 

 

 

 

 

77,120

 

U.S. government securities

 

 

59,208

 

 

 

 

 

 

(58

)

 

 

59,150

 

Total available-for-sale investments

 

$

193,875

 

 

$

1

 

 

$

(127

)

 

$

193,749

 

 

 

 

December 31, 2017

 

 

 

Amortized

Cost

 

 

Gross

unrealized gains

 

 

Gross

unrealized losses

 

 

Total

fair value

 

Agency securities

 

$

12,729

 

 

$

 

 

$

(11

)

 

$

12,718

 

Corporate securities

 

 

29,369

 

 

 

1

 

 

 

(26

)

 

 

29,344

 

Commercial paper

 

 

54,848

 

 

 

 

 

 

 

 

 

54,848

 

U.S. government securities

 

 

46,520

 

 

 

 

 

 

(72

)

 

 

46,448

 

Total available-for-sale investments

 

$

143,466

 

 

$

1

 

 

$

(109

)

 

$

143,358

 

 

At March 31, 2018, all of the available-for-sale securities have contractual maturities within fourteen months. 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 quarters ended March 31, 2018 and 2017, 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):

 

 

 

March 31, 2018

 

 

December 31, 2017

 

Furniture and equipment

 

$

1,960

 

 

$

1,655

 

Computer equipment

 

 

1,624

 

 

 

1,410

 

Manufacturing equipment

 

 

830

 

 

 

830

 

Leased equipment

 

 

100

 

 

 

100

 

Leasehold improvements

 

 

2,685

 

 

 

2,685

 

Buildings

 

 

688

 

 

 

688

 

Construction in progress

 

 

15,143

 

 

 

11,490

 

Property and equipment, gross

 

 

23,030

 

 

 

18,858

 

Less: accumulated depreciation

 

 

(2,009

)

 

 

(1,653

)

Property and equipment, net

 

$

21,021

 

 

$

17,205

 

 

9


 

Accrued Liabilities

Accrued liabilities consisted of the following (in thousands):

 

 

 

March 31, 2018

 

 

December 31, 2017

 

Compensation and benefits

 

$

3,938

 

 

$

6,205

 

Research and development

 

 

16,108

 

 

 

12,716

 

Professional and consulting

 

 

3,816

 

 

 

2,370

 

Other

 

 

265

 

 

 

187

 

Total accrued liabilities

 

$

24,127

 

 

$

21,478

 

 

5. Commitments and Contingencies

Purchase Commitments

We purchase food-grade peanut flour from Golden Peanut Company, or GPC, pursuant to a long-term exclusive commercial supply agreement, which was expanded and extended in January 2018. GPC is precluded from selling several peanut flour products to any third party worldwide for use in oral immunotherapy (OIT) for the treatment or cure of peanut allergy, provided that we are in compliance with our exclusive purchase obligation and meet specified annual purchase commitments. The restated agreement remains in effect until ten years after the first delivery to us of peanut flour for commercial use and includes an option for us to extend the term for an additional five years.

In connection with the expansion and extension of the agreement, we issued Archer Daniels Midland Company 300,000 shares of restricted common stock, vesting in four tranches over a 3.5 year period. Expense related to these shares will be measured as each tranche vests and recognized over the vesting period. At issuance, these shares had a fair value of $11.7 million, which will be remeasured as each tranche vests and recognized as general and administrative expense over the vesting period. Subject to certain exceptions, in the event that the price per share of our common stock were to fall below a specified level, the restated agreement provides that GPC would only be prohibited from selling one peanut flour product to any third party in the United States, Mexico, Canada, the European Union or Japan for use in OIT for the treatment or cure of peanut allergy.

Pursuant with the restated agreement, our purchase obligation commences with the first delivery of peanut flour for commercial use, which we currently anticipate will not occur prior to 2019. Assuming that our first delivery for commercial use occurs in 2019, which is not assured, the aggregate purchase commitment under this agreement would be $8.3 million over a term of ten years.

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

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 March 31, 2018, there were 5.1 million shares reserved for future issuance under our 2015 Plan. As of March 31, 2018, there were 7.3 million shares subject to outstanding options under our 2013 Plan and 2015 Plan.

10


 

Prior to its termination, 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 March 31, 2018 and December 31, 2017, 11,743 and 46,973 unvested shares, respectively, were legally issued and outstanding. In connection with these unvested shares, we have recorded an early exercise liability as of March 31, 2018, of $1,700, 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, 2017

 

 

6,629,111

 

 

$

14.15

 

 

 

8.2

 

 

$

156,900

 

Options granted

 

 

1,146,400

 

 

$

34.19

 

 

 

 

 

 

 

 

 

Options exercised and shares vested

 

 

(343,699

)

 

$

7.98

 

 

 

 

 

 

 

 

 

Options cancelled

 

 

(158,955

)

 

$

18.48

 

 

 

 

 

 

 

 

 

Balance, March 31, 2018

 

 

7,272,857

 

 

$

17.52

 

 

 

8.3

 

 

$

104,155

 

Options vested and expected to vest as of

   March 31, 2018

 

 

6,968,524

 

 

$

17.22

 

 

 

8.3

 

 

$

101,810

 

Options exercisable as of March 31, 2018

 

 

3,181,168

 

 

$

9.67

 

 

 

8.3

 

 

$

70,501

 

 

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 March 31, 2018. The 2013 Plan provided for early exercise, therefore, all our outstanding stock options issued under that plan are exercisable.

As of March 31, 2018 and 2017, there was $58.7 million and $43.7 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 2.6 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, 2017

 

 

16,638

 

 

$

35.41

 

Awarded

 

 

264,462

 

 

 

34.13

 

Released

 

 

 

 

 

 

Forfeited

 

 

(2,163

)

 

 

34.07

 

Unvested Balance, March 31, 2018

 

 

278,937

 

 

$

34.45

 

 

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). As of March 31, 2018, and 2017, there was $9.4 million and zero, respectively, of unrecognized stock-based compensation expense related to RSUs, which is expected to be recognized over the weighted-average remaining vesting period of 3.9 years.

 

In connection with the expansion and extension of our long-term exclusive commercial supply agreement with GPC, we issued 300,000 shares of restricted common stock in January 2018 (see Note 5). The restricted common stock vests in four tranches over a 3.5 year period, and is measured based on the fair market value of the underlying stock as the shares vest. As of March 31, 2018, all shares were restricted and total estimated unrecognized expense related to these restricted shares was $8.5 million based upon the fair market value of our common stock, which is expected to be recognized over the 3.5 year vesting period as general and administrative expense. Stock-based compensation expense recognized during the quarter ended March 31, 2018 related to these shares was $1.1 million.

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 March 31,

 

 

 

2018

 

 

2017

 

Expected term (in years)

 

 

6.0

 

 

 

6.1

 

Expected volatility

 

 

68.5

%

 

 

73.5

%

Risk free interest rate

 

 

2.3

%

 

 

2.1

%

Dividend yield

 

 

%

 

 

%

Weighted average estimated fair value

 

$

21.43

 

 

$

12.82

 

 

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 March 31,

 

 

 

2018

 

 

2017

 

Research and development

 

$

2,047

 

 

$

986

 

General and administrative

 

 

5,560

 

 

 

2,607

 

Total stock-based compensation expense

 

$

7,607

 

 

$

3,593

 

 

During the quarter ended March 31, 2018, we recorded approximately $1.2 million of stock-based compensation expense related to the acceleration of certain former executives’ stock options. 

 

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 March 31,

 

 

 

2018

 

 

2017

 

Stock options

 

 

7,272,857

 

 

 

6,855,711

 

Restricted stock units

 

 

278,937

 

 

 

12,000

 

 

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 quarters ended March 31, 2018 and 2017, there were no payments to MyHealthTeams pursuant to such agreement. At March 31, 2018 and December 31, 2017, there were no accrued liabilities due under the MyHealthTeams agreement.

In February and March 2018, we issued and sold an aggregate of 6,325,000 shares of our common stock in an underwritten public offering at a price to the public of $32.00 per share for total net proceeds of $190.5 million.  

The following aggregate number of shares of common stock were sold to our owners of more than 5% of our common stock, directors, or executive officers during the underwritten public offering:

12


 

 

 

Number of Shares of Common Stock (#)

 

 

Aggregate Purchase Price ($)

 

Owners of More Than 5% of Our Common Stock

 

 

 

 

 

 

 

 

Nestlé Health Science US Holdings, Inc.

 

 

937,500

 

 

 

30,000,000

 

Board of Directors

 

 

 

 

 

 

 

 

Patrick G. Enright

 

 

15,593

 

 

 

498,976

 

Kathryn E. Falberg

 

 

30,000

 

 

 

960,000

 

Mark T. Iwicki

 

 

9,375

 

 

 

300,000

 

Officers

 

 

 

 

 

 

 

 

Eric H. Bjerkholt

 

 

3,125

 

 

 

100,000

 

 

    

13


 

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, 2017, included in our Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission on February 20, 2018. 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 during 2018.

 

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 between the ages of 4 and 49 in November 2016 and completed the final study for the PALISADE trial in December 2017. Patient demographics were generally balanced among patients ages 4-17 enrolled in the AR101 treatment arm as compared to those from the same age group enrolled in the placebo treatment arm.

 

After approximately one year of treatment, patients completed an exit double-blind, placebo-controlled food challenge (DBPCFC). Efficacy results for Intent-to-Treat, or ITT, group are summarized in the chart below.

 

 

A total of 496 patients ages 4–17, from both arms (372 AR101 and 124 placebo), were evaluable for safety. There were no deaths or suspected, unexpected serious adverse reactions. In both arms, the incidence of serious adverse events (SAEs) was low. An

14


 

SAE is an adverse event that results in significant medical consequences, such as hospitalization, disability or death, and must be reported to the FDA.  A total of nine patients ages 4-17 experienced SAEs, none of which were considered life-threatening: eight of these patients were in the AR101 arm (2.4%) and one was in the placebo arm (0.8%). Four of the eight SAEs in the AR101 arm were deemed related to treatment and one of these was severe. Of patients ages 4-17, 12.4% of patients from the AR101 treatment arm and 2.4% of patients from the placebo-treatment arm discontinued due to investigator-reported adverse events.  

In December 2017, we completed enrollment of 388 eligible patients who had completed PALISADE into a related open-label roll-over trial, which we refer to as the ARC004 trial. In January 2018, we completed enrollment of 506 patients 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 February 2018, we completed enrollment of 175 patients in our European Phase 3 efficacy trial designed with a higher efficacy bar of tolerating 1,000 mg of peanut protein in an exit food-challenge without anything more than mild, transient symptoms, which we refer to as the ARTEMIS (AR101 Trial in Europe Measuring Oral Immunotherapy Success) trial. We expect data from the ARC004 and RAMSES trials in the second half of 2018 and from the ARTEMIS trial in the first quarter of 2019.  

We expect to submit a Biologics License Application, or BLA, in the United States in late 2018 and a Marketing Authorization Application, or MAA, with the European Medicines Agency, or EMA, in the first half of 2019. If we complete clinical testing and receive approval of a BLA for AR101 in-line with our current expected timing, we would expect to be able to commence commercial sales of AR101 around the end of 2019.

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 by developing a specialty sales force targeting a subset of approximately 5,000 practicing 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 $49.5 million for the quarter ended March 31, 2018 and used $39.8 million of cash in operations for the quarter ended March 31, 2018. As of March 31, 2018, our accumulated deficit was $315.0 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.

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 at least until the end of 2019 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 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

15


 

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, 2017.

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.

 

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 allocable expenses, including facilities-related rent and depreciation, from our facilities and information technology departments, which are allocated between research and development and general and administrative functions based on headcount.

16


 

Results of Operations

Comparison of the Quarters Ended March 31, 2018 and 2017

 

 

 

Quarter Ended March 31,

 

 

 

 

 

 

 

 

 

 

 

2018

 

 

2017

 

 

$ Change

 

 

% Change

 

 

 

(In thousands)

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

33,446

 

 

$

17,417

 

 

$

16,029

 

 

 

92

%

General and administrative

 

 

16,673

 

 

 

8,924

 

 

 

7,749

 

 

 

87

%

Total operating expenses

 

 

50,119

 

 

 

26,341

 

 

 

23,778

 

 

 

90

%

Loss from operations

 

 

(50,119

)

 

 

(26,341

)

 

 

(23,778

)

 

 

90

%

Interest income, net

 

 

636

 

 

 

471

 

 

 

165

 

 

 

35

%

Loss before provision for income taxes

 

 

(49,483

)

 

 

(25,870

)

 

 

(23,613

)

 

 

91

%

Provision for income taxes

 

 

17

 

 

 

 

 

 

17

 

 

 

0

%

Net loss

 

$

(49,500

)

 

$

(25,870

)

 

$

(23,630

)

 

 

91

%

 

Research and Development Expenses

The following table summarizes our research and development expenses incurred during the quarters ended March 31, 2018 and 2017:

 

 

 

Quarter Ended March 31,

 

 

 

 

 

 

 

 

 

 

 

2018

 

 

2017

 

 

$ Change

 

 

% Change

 

 

 

(In thousands)

 

External clinical-related expenses

 

$

22,613

 

 

$

12,741

 

 

$

9,872

 

 

 

77

%

Employee-related costs

 

 

6,677

 

 

 

2,860

 

 

 

3,817

 

 

 

133

%

Stock-based compensation expense

 

 

2,047

 

 

 

986

 

 

 

1,061

 

 

 

108

%

Facilities and other costs

 

 

2,109

 

 

 

830

 

 

 

1,279

 

 

 

154

%

Total research and development expenses

 

$

33,446

 

 

$

17,417

 

 

$

16,029

 

 

 

92

%

 

Research and development expenses increased by $16.0 million for the quarter ended March 31, 2018, compared to the quarter ended March 31, 2017, primarily due to increased external clinical-related expenses, employee-related costs, stock-based compensation expense, and facilities and other costs. External clinical-related costs increased primarily due to the progression of the AR101 program, which include the RAMSES, ARC008, ARTEMIS and ARC011 clinical trials that commenced in 2017, and higher contract manufacturing costs to support clinical development. Employee-related costs and stock-based compensation expense increased primarily due to increased headcount to support continued development of AR101. Facilities and other costs increased primarily due to the allocation of higher facilities and information technology costs, which are allocable from general and administrative to research and development expenses based on 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 of additional AR101 studies, and as we develop additional CODIT product candidates, including for the treatment of egg allergy and walnut allergy.

 

General and Administrative Expenses

The following table summarizes our general and administrative expenses incurred during the quarters ended March 31, 2018 and 2017: 

 

 

 

Quarter Ended March 31,

 

 

 

 

 

 

 

 

 

 

 

2018

 

 

2017

 

 

$ Change

 

 

% Change

 

 

 

(In thousands)

 

Employee-related costs

 

$

4,550

 

 

$

3,086

 

 

$

1,464

 

 

 

47

%

Stock-based compensation expense

 

 

5,560

 

 

 

2,607

 

 

 

2,953

 

 

 

113

%

External professional services

 

 

6,319

 

 

 

2,741

 

 

 

3,578

 

 

 

131

%

Facilities and other costs

 

 

244

 

 

 

490

 

 

 

(246

)

 

 

(50

)%

Total general and administrative expenses

 

$

16,673

 

 

$

8,924