10-Q 1 atra-10q_20160630.htm 10-Q atra-10q_20160630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

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

For the quarterly period ended June 30, 2016

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 001-36548

 

ATARA BIOTHERAPEUTICS, INC.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware

 

46-0920988

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

611 Gateway Blvd., Suite 900

South San Francisco, CA

 

94080

(Address of principal executive offices)

 

(Zip Code)

 

(Registrant’s telephone number, including area code: (650) 278-8930

 

 

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  x    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  x    No  ¨

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

¨

Accelerated filer

x

Non-accelerated filer

¨

Smaller reporting company

¨

(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No   x

The number of outstanding shares of the Registrant’s Common Stock as of July 31, 2016 was 28,811,019 shares.

 

 

 


 

ATARA BIOTHERAPEUTICS, INC.

INDEX

 

 

  

 

  

Page

PART I.

  

FINANCIAL INFORMATION

  

 

 

 

 

Item 1.

  

Financial Statements (Unaudited)

  

3

 

 

 

 

  

Condensed Consolidated Balance Sheets

  

3

 

 

 

 

  

Condensed Consolidated Statements of Operations and Comprehensive Loss

  

4

 

 

 

 

  

Condensed Consolidated Statements of Cash Flows

  

5

 

 

 

 

  

Notes to Condensed Consolidated Financial Statements

  

6

 

 

 

Item 2.

  

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

  

15

 

 

 

Item 3.

  

Quantitative and Qualitative Disclosures about Market Risk

  

23

 

 

 

Item 4.

  

Controls and Procedures

  

23

 

 

 

PART II.

  

OTHER INFORMATION

  

 

 

 

 

Item 1.

  

Legal Proceedings

  

24

 

 

 

Item 1A.

  

Risk Factors

  

24

 

 

 

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

  

56

 

 

 

  

Signatures

  

57

 

 

 

 

  

Index to Exhibits

  

58

 

 

 

 

 

2


 

Atara Biotherapeutics, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

June 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Assets

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

26,356

 

 

$

23,746

 

Short-term investments

 

 

268,201

 

 

 

296,736

 

Restricted cash

 

 

194

 

 

 

194

 

Prepaid expenses and other current assets

 

 

4,132

 

 

 

3,921

 

Total current assets

 

 

298,883

 

 

 

324,597

 

Property and equipment, net

 

 

1,830

 

 

 

270

 

Other assets

 

 

101

 

 

 

108

 

Total assets

 

$

300,814

 

 

$

324,975

 

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

3,235

 

 

$

1,445

 

Accrued compensation

 

 

2,135

 

 

 

2,624

 

Accrued research and development expenses

 

 

3,799

 

 

 

5,112

 

Other accrued liabilities

 

 

837

 

 

 

528

 

Total current liabilities

 

 

10,006

 

 

 

9,709

 

Long-term liabilities

 

 

563

 

 

 

166

 

Total liabilities

 

 

10,569

 

 

 

9,875

 

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 6)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Common stock—$0.0001 par value, 500,000,000 shares authorized as of

   June 30, 2016 and December 31, 2015; 28,705,875 and 28,458,807 shares issued

   and outstanding as of June 30, 2016 and December 31, 2015, respectively

 

 

3

 

 

 

3

 

Additional paid-in capital

 

 

423,600

 

 

 

413,725

 

Accumulated other comprehensive income (loss)

 

 

193

 

 

 

(518

)

Accumulated deficit

 

 

(133,551

)

 

 

(98,110

)

Total stockholders’ equity

 

 

290,245

 

 

 

315,100

 

Total liabilities and stockholders’ equity

 

$

300,814

 

 

$

324,975

 

 

 

See accompanying notes.

 

 

3


 

Atara Biotherapeutics, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except per share amounts)

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

$

12,991

 

 

$

11,507

 

 

$

24,238

 

 

$

17,274

 

General and administrative

 

 

6,494

 

 

 

3,601

 

 

 

12,308

 

 

 

7,145

 

Total operating expenses

 

 

19,485

 

 

 

15,108

 

 

 

36,546

 

 

 

24,419

 

Loss from operations

 

 

(19,485

)

 

 

(15,108

)

 

 

(36,546

)

 

 

(24,419

)

Interest and other income, net

 

 

605

 

 

 

163

 

 

 

1,108

 

 

 

316

 

Loss before provision for income taxes

 

 

(18,880

)

 

 

(14,945

)

 

 

(35,438

)

 

 

(24,103

)

Provision for income taxes

 

 

 

 

 

 

 

 

3

 

 

 

2

 

Net loss

 

$

(18,880

)

 

$

(14,945

)

 

$

(35,441

)

 

$

(24,105

)

Other comprehensive gain (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on available-for-sale securities

 

 

142

 

 

 

(48

)

 

 

711

 

 

 

34

 

Comprehensive loss

 

$

(18,738

)

 

$

(14,993

)

 

$

(34,730

)

 

$

(24,071

)

Net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(0.66

)

 

$

(0.62

)

 

$

(1.24

)

 

$

(1.04

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding used

   to calculate basic and diluted net loss per common share

 

 

28,665

 

 

 

24,224

 

 

 

28,603

 

 

 

23,079

 

See accompanying notes.

4


 

Atara Biotherapeutics, Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30,

 

 

 

2016

 

 

2015

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

 

$

(35,441

)

 

$

(24,105

)

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

 

 

 

 

 

 

 

 

Stock-based compensation expense

 

 

9,860

 

 

 

5,053

 

Amortization of investment premiums and discounts

 

 

2,294

 

 

 

880

 

Depreciation expense

 

 

79

 

 

 

11

 

Loss on foreign exchange

 

 

4

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Prepaid expenses and other current assets

 

 

(816

)

 

 

(3,314

)

Other assets

 

 

7

 

 

 

(24

)

Accounts payable

 

 

1,790

 

 

 

1,162

 

Accrued compensation

 

 

(489

)

 

 

(301

)

Accrued research and development expenses

 

 

(1,313

)

 

 

4,500

 

Other accrued liabilities

 

 

235

 

 

 

3,247

 

Long-term liabilities

 

 

511

 

 

 

27

 

Net cash used in operating activities

 

 

(23,279

)

 

 

(12,864

)

Investing activities

 

 

 

 

 

 

 

 

Purchases of short-term investments

 

 

(186,006

)

 

 

(111,325

)

Sales of short-term investments

 

 

95,242

 

 

 

29,589

 

Maturities of short-term investments

 

 

118,320

 

 

 

33,920

 

Purchases of property and equipment

 

 

(1,639

)

 

 

(5

)

Net cash provided by (used in) investing activities

 

 

25,917

 

 

 

(47,821

)

Financing activities

 

 

 

 

 

 

 

 

Proceeds from sale of common stock, net of offering costs

 

 

 

 

 

69,445

 

Taxes paid related to net share settlement of restricted stock units

 

 

(53

)

 

 

(4,468

)

Proceeds from exercise of stock options

 

 

29

 

 

 

 

Net cash provided by (used in) financing activities

 

 

(24

)

 

 

64,977

 

Effect of exchange rates on cash

 

 

(4

)

 

 

 

Increase in cash and cash equivalents

 

 

2,610

 

 

 

4,292

 

Cash and cash equivalents at beginning of period

 

 

23,746

 

 

 

21,897

 

Cash and cash equivalents at end of period

 

$

26,356

 

 

$

26,189

 

Non-cash investing and financing activities

 

 

 

 

 

 

 

 

Issuance of common stock upon vesting of stock awards

 

$

40

 

 

$

40

 

Change in long-term liabilities related to non-vested stock awards

 

$

(40

)

 

$

(40

)

Proceeds receivable from option exercises

 

$

 

 

$

32

 

Offering costs in anticipation of public filing included in other accrued liabilities and accounts

   payable

 

$

 

 

$

312

 

Property and equipment purchases included in liabilities

 

$

503

 

 

$

 

Supplemental cash flow disclosure

 

 

 

 

 

 

 

 

Cash paid for taxes

 

$

3

 

 

$

2

 

 See accompanying notes.

 

 

5


 

Atara Biotherapeutics, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

 

1.

Description of Business

Atara Biotherapeutics, Inc. (“Atara”, “we”, “our” or “the Company”) was incorporated in August 2012 in Delaware. Atara is a clinical-stage biopharmaceutical company focused on developing meaningful therapies for patients with severe and life-threatening diseases that have been underserved by scientific innovation. We have two groups of product candidates: (a) allogeneic, or third-party derived, antigen-specific T-cells, and (b) molecularly targeted biologics.

Our T-cell programs were acquired through licensing arrangements with Memorial Sloan Kettering Cancer Center (“MSK”). Our molecularly targeted biologics programs were acquired through licensing arrangements with Amgen Inc. (“Amgen”). See Note 5 for further information.

 

2.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and following the requirements of the Securities and Exchange Commission (SEC) for interim reporting. As permitted under those rules, certain footnotes or other financial information that are normally required by U.S. GAAP can be condensed or omitted. These condensed consolidated financial statements have been prepared on the same basis as the Company’s annual consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, and, in the opinion of management, reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair statement of the Company’s consolidated financial information. The results of operations for the six month period ended June 30, 2016 are not necessarily indicative of the results to be expected for the full year or any other future period. The balance sheet as of December 31, 2015 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 consolidated financial statements.

Significant Risks and Uncertainties

We have incurred significant operating losses since inception and have relied on public and private equity financings to fund our operations. As of June 30, 2016, we had an accumulated deficit of $133.6 million. As we continue to incur losses, our transition to profitability will depend on the successful development, approval and commercialization of product candidates and on the achievement of sufficient revenues to support our cost structure. We may never achieve profitability, and unless and until we do, we will need to continue to raise additional capital. Management expects that our cash, cash equivalents and short-term investments as of June 30, 2016 will be sufficient to fund our planned operations through 2018.

Concentration of Credit Risk and Other Uncertainties

We place cash and cash equivalents in the custody of financial institutions that management believes are of high credit quality, the amount of which at times, may be in excess of the amount insured by the Federal Deposit Insurance Corporation. We also have short-term investments in money market funds, U.S. Treasury, government agency and corporate debt obligations, commercial paper and asset-backed securities, which can be subject to certain credit risk. However, we mitigate the risks by investing in high-grade instruments, limiting our exposure to any one issuer, and monitoring the ongoing creditworthiness of the financial institutions and issuers.

We are subject to certain risks and uncertainties and believe that changes in any of the following areas could have a material adverse effect on future financial position or results of operations: our ability to obtain future financing; regulatory approval and market acceptance of, and reimbursement for, our product candidates, if approved; performance of third-party clinical research organizations and manufacturers upon which we rely; development of sales channels; protection of our intellectual property; litigation or claims against us based on intellectual property, patent, product, regulatory or other factors; and our ability to attract and retain employees necessary to support our growth.

6


 

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant estimates relied upon in preparing these financial statements include estimates related to clinical trial accruals and stock-based compensation expense. Actual results could differ materially from those estimates.

Recent Accounting Pronouncements

In January 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, which amends the guidance in U.S. GAAP on the classification and measurement of financial instruments. Although the ASU retains many current requirements, it significantly revises an entity’s accounting related to the classification and measurement of investments in equity securities and the presentation of certain fair value changes for financial liabilities measured at fair value. The ASU also amends certain disclosure requirements associated with the fair value of financial instruments. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2017, with early adoption permitted for certain changes. The Company has not yet determined the method of adoption and the potential effect the new standard will have on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which is intended to increase the transparency and comparability in the reporting of leasing arrangements by generally requiring leased assets and liabilities to be recorded on the balance sheet. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018, with early adoption permitted. The Company has not yet determined the method of adoption and the potential effect the new standard will have on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification in the statement of cash flows. The new standard is effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016, with early adoption permitted. The Company has not yet determined the method of adoption and the potential effect the new standard will have on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Loss (Topic 326): Measurement of Credit Losses on Financial Instruments, which significantly changes how companies measure and recognize credit impairment for many financial assets. The new current expected credit loss model will require companies to immediately recognize an estimate of credit losses expected to occur over the remaining life of the financial assets that are in the scope of the standard. The ASU also makes targeted amendments to the current impairment model for available-for-sale debt securities. The new standard is effective on January 1, 2020 for the Company. The Company has not yet determined the method of adoption and the potential effect the new standard will have on the Company’s consolidated financial statements.

7


 

 

 

3.

Net Loss per Common Share

Basic net loss per common share is calculated by dividing net loss by the weighted-average number of shares of common stock outstanding during the period, without consideration of common share equivalents. Diluted net loss per common share is computed by dividing net loss by the weighted-average number of shares of common stock and common share equivalents outstanding for the period. Common share equivalents are only included in the calculation of diluted net loss per common share when their effect is dilutive.

Potential dilutive securities, which include unvested restricted stock awards (“RSAs”), unvested restricted stock units (“RSUs”), vested and unvested options to purchase common stock (“options”) and shares to be issued under our employee stock purchase plan (“ESPP”) have been excluded from the computation of diluted net loss per share as the effect is antidilutive. Therefore, the denominator used to calculate both basic and diluted net loss per common share is the same in all periods presented.

The following table represents the potential common shares issuable pursuant to outstanding securities as of the related period end dates that were excluded from the computation of diluted net loss per common share as their inclusion would have an antidilutive effect: 

 

 

As of June 30,

 

 

2016

 

 

2015

 

Unvested RSAs

 

90,144

 

 

 

416,207

 

Unvested RSUs

 

922,569

 

 

 

564,821

 

Vested and unvested options

 

3,424,099

 

 

 

470,094

 

ESPP share purchase rights

 

4,048

 

 

 

 

 

    

 

4.

Financial Instruments

Our financial assets are measured at fair value on a recurring basis using the following hierarchy to prioritize valuation inputs, in accordance with applicable GAAP:

 

Level 1:

  

Quoted prices in active markets for identical assets or liabilities that we have the ability to access

 

Level 2:

  

 

Observable market based inputs or unobservable inputs that are corroborated by market data such as quoted prices, interest rates and yield curves

 

Level 3:

  

 

Inputs that are unobservable data points that are not corroborated by market data

We review the fair value hierarchy classification on a quarterly basis. Changes in the ability to observe valuation inputs may result in a reclassification of levels of certain securities within the fair value hierarchy. We recognize transfers into and out of levels within the fair value hierarchy in the period in which the actual event or change in circumstances that caused the transfer occurs. There have been no transfers between Level 1, Level 2, and Level 3 in any periods presented.

8


 

The following tables summarize the estimated fair value and related valuation input hierarchy of our financial assets measured on a recurring basis, which were comprised solely of available-for-sale securities as of each period end:

 

 

 

 

 

Total

 

 

Total

 

 

Total

 

 

Total

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

As of June 30, 2016:

 

Input Level

 

Cost

 

 

Gain

 

 

Loss

 

 

Fair Value

 

 

 

 

 

(in thousands)

 

Money market funds

 

Level 1

 

$

21,377

 

 

$

 

 

$

 

 

$

21,377

 

U.S. Treasury obligations

 

Level 2

 

 

81,460

 

 

 

114

 

 

 

(3

)

 

 

81,571

 

Government agency obligations

 

Level 2

 

 

29,716

 

 

 

25

 

 

 

(6

)

 

 

29,735

 

Corporate debt obligations

 

Level 2

 

 

154,173

 

 

 

109

 

 

 

(47

)

 

 

154,235

 

Asset-backed securities

 

Level 2

 

 

7,595

 

 

 

4

 

 

 

(2

)

 

 

7,597

 

Total available-for-sale securities

 

 

 

 

294,321

 

 

 

252

 

 

 

(58

)

 

 

294,515

 

Less amounts classified as cash equivalents

 

 

 

 

(26,314

)

 

 

 

 

 

 

 

 

(26,314

)

Amounts classified as short-term securities

 

 

 

$

268,007

 

 

$

252

 

 

$

(58

)

 

$

268,201

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

Total

 

 

Total

 

 

Total

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

As of December 31, 2015:

 

Input Level

 

Cost

 

 

Gain

 

 

Loss

 

 

Fair Value

 

 

 

 

 

(in thousands)

 

Money market funds

 

Level 1

 

$

16,364

 

 

$

 

 

$

 

 

$

16,364

 

U.S. Treasury obligations

 

Level 2

 

 

599

 

 

 

 

 

 

(1

)

 

 

598

 

Government agency obligations

 

Level 2

 

 

36,480

 

 

 

1

 

 

 

(88

)

 

 

36,393

 

Corporate debt obligations

 

Level 2

 

 

203,767

 

 

 

8

 

 

 

(339

)

 

 

203,436

 

Commercial paper

 

Level 2

 

 

999

 

 

 

 

 

 

 

 

 

999

 

Asset-backed securities

 

Level 2

 

 

61,304

 

 

 

2

 

 

 

(102

)

 

 

61,204

 

Total available-for-sale securities

 

 

 

 

319,513

 

 

 

11

 

 

 

(530

)

 

 

318,994

 

Less amounts classified as cash equivalents

 

 

 

 

(22,259

)

 

 

 

 

 

1

 

 

 

(22,258

)

Amounts classified as short-term securities

 

 

 

$

297,254

 

 

$

11

 

 

$

(529

)

 

$

296,736

 

 

The amortized cost and fair value of our available-for-sale securities by contractual maturity were as follows:

 

 

As of June 30, 2016

 

 

As of December 31, 2015

 

 

Amortized

 

 

Estimated

 

 

Amortized

 

 

Estimated

 

 

Cost

 

 

Fair Value

 

 

Cost

 

 

Fair Value

 

 

(in thousands)

 

 

(in thousands)

 

Maturing within one year

$

213,377

 

 

$

213,431

 

 

$

211,311

 

 

$

211,059

 

Maturing in one to five years

 

80,944

 

 

 

81,084

 

 

 

108,202

 

 

 

107,935

 

Total available-for-sale securities

$

294,321

 

 

$

294,515

 

 

$

319,513

 

 

$

318,994

 

 

As of June 30, 2016, certain available-for-sale securities had been in a continuous unrealized loss position, each for less than twelve months. As of this date, no significant facts or circumstances were present to indicate a deterioration in the creditworthiness of the respective issuers, and the Company had no requirement or intention to sell these securities before maturity or recovery of their amortized cost basis. During the three months and six months ended June 30, 2016 and 2015, we did not recognize any other-than-temporary impairment loss.

 

 

5.

License and Collaboration Agreements

MSK Agreements – In September 2014, we entered into an exclusive option agreement with MSK under which we had the right to acquire the exclusive worldwide license rights to three clinical stage T-cell therapies from MSK. In exchange for the option, we paid $1.25 million in cash and issued 59,761 shares of our common stock to MSK, which at the time of issuance had an estimated fair value of $0.75 million. The total of $2.0 million was recorded as research and development expense in our statements of operations and comprehensive loss.

In June 2015, we exercised our option and entered into an exclusive license agreement with MSK. In connection with the execution of the license agreement, we paid $4.5 million in cash to MSK, which was recorded as research and development expense in our statement of operations and comprehensive loss.

9


 

We are required to make additional payments of up to $33.0 million to MSK based on achievement of specified regulatory and sales-related milestones, as well as mid-single-digit percentage tiered royalty payments based on future sales of products resulting from the development of the licensed product candidates, if any. In addition, under certain circumstances, we are required to make certain minimum annual royalty payments to MSK, which are creditable against earned royalties owed for the same annual period. We are also required to pay a low double-digit percentage of any consideration we receive for sublicensing the licensed rights. The license agreement expires on a product-by-product and country-by-country basis on the later of: (i) expiration of the last licensed patent rights related to each licensed product, (ii) expiration of any market exclusivity period granted by law with respect to each licensed product, and (iii) a specified number of years after the first commercial sale of the licensed product in each country. Upon expiration of the license agreement, Atara will retain non-exclusive rights to the licensed products.

Amgen License Agreements - In September 2012, we entered into three license agreements with Amgen. In accordance with terms of the agreements with Amgen, we use commercially reasonable efforts to prepare, file, prosecute, defend and maintain the patents covered by the license agreements. During the three months ended June 30, 2016 and 2015, we incurred expenses of $0.2 million and $0.3 million, respectively, related to these activities. During the six months ended June 30, 2016 and 2015, we incurred expenses of $0.4 million and $0.7 million, respectively, related to these activities.

In December 2015, we announced that we would be suspending further development of PINTA 745 and in June 2016, we returned the rights related to this and the ATA 842 program to Amgen. Under the remaining license agreements, potential payments of up to $58.0 million are due to Amgen upon the achievement of development and regulatory approval milestones and payments of up to $104.0 million are due upon the achievement of sales-based milestones.

We are also required to pay mid-single-digit percentage tiered royalties on future net sales of products which are developed and approved as defined by the agreements, if any. Our royalty obligations as to a particular licensed product will be payable, on a country-by-country and product-by-product basis, until the later of (a) the date of expiration of the last to expire valid claim within the licensed patents that covers the manufacture, use or sale, offer to sell, or import of such licensed product by us or a sublicense in such country, (b) loss of regulatory exclusivity, or (c) 10 years after the first commercial sale of the applicable licensed product in the applicable country. These agreements expire at the end of all royalty obligations to Amgen and, upon expiration, the licenses will be fully paid, royalty-free, irrevocable and non-exclusive.

QIMR Berghofer Agreements – In October 2015, we entered into an exclusive license agreement and a research and development collaboration agreement with QIMR Berghofer Medical Research Institute (“QIMR Berghofer”). Under the terms of the license agreement, we obtained an exclusive, worldwide license to develop and commercialize allogeneic cytotoxic T-lymphocyte (“CTL”) therapy programs utilizing technology and know-how developed by QIMR Berghofer.  In consideration for the exclusive license, we paid $3.0 million in cash to QIMR Berghofer, which was recorded as research and development expense in our statement of operations and comprehensive loss. Under the research and development collaboration agreement, we are required to reimburse the cost of agreed upon development activities. These payments are expensed on a straight-line basis over the term of the agreement and resulted in research and development expense of $0.3 million and $0.6 million for the three and six months ended June 30, 2016, respectively. The agreement also provides for various milestone and royalty payments to QIMR Berghofer based on achievement of certain developmental milestones and future product sales, if any.

Milestones and royalties under each of the above agreements are contingent upon future events and will be recorded as expense when it is probable that the milestones will be achieved or royalties are due. As of June 30, 2016 and December 31, 2015, there were no outstanding obligations for milestones and royalties to MSK, Amgen and QIMR Berghofer.

 

 

6.

Commitments and Contingencies

License and Collaboration Agreements

Certain potential payments related to our license and collaboration agreements, including milestone and royalty payments, are detailed in Note 5. As the achievement of these milestones and royalties are currently not fixed and determinable, such commitments have not been included in our balance sheets.  

Other Research and Development Agreements

We may enter into contracts in the normal course of business with clinical research organizations for clinical trials, with contract manufacturing organizations for clinical supplies, and with other vendors for pre-clinical studies, supplies and other services for our operating purposes. These contracts generally provide for termination on notice, with the exception of potential termination charges related to one of our contract manufacturing agreements in the event certain minimum purchase volumes are not met.

10


 

Operating Leases

In December 2015, we entered into a lease agreement for our new corporate headquarters in South San Francisco, California, which is expected to expire in April 2021. In connection with the lease, we issued a letter of credit for $0.2 million to the landlord, which expires in December 2016 and is classified as restricted cash in our condensed consolidated balance sheet. In May 2016, we subleased our previous corporate facility to a third party through January 2017. Other leased property includes a facility in Westlake Village, California under a lease agreement that expires in April 2019. As of June 30, 2016, future minimum commitments for our operating leases were as follows:

 

 

 

Operating Leases

 

Periods Ending December 31,

 

(in thousands)

 

2016

 

$

747

 

2017

 

 

1,295

 

2018

 

 

981

 

2019

 

 

734

 

2020

 

 

614

 

Thereafter

 

 

208

 

Total operating lease commitments

 

$

4,579

 

Less income from sublease

 

 

141

 

Net minimum operating lease commitments

 

$

4,438

 

 

Rent expense for the three months ended June 30, 2016 and 2015 was $0.3 million and $0.1 million, respectively.  Rent expense for the six months ended June 30, 2016 and 2015 was $0.6 million and $0.2 million, respectively.

Indemnification Agreements

In the normal course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for indemnification for certain liabilities. The exposure under these agreements is unknown because it involves claims that may be made against us in the future but have not yet been made. To date, we have not paid any claims or been required to defend any action related to our indemnification obligations. However, we may record charges in the future as a result of these indemnification obligations. We also have indemnification obligations to our directors and executive officers for specified events or occurrences, subject to some limits, while they are serving at our request in such capacities. There have been no claims to date and we believe the fair value of these indemnification agreements is minimal. Accordingly, we did not record liabilities for these agreements as of June 30, 2016 and December 31, 2015.

Contingencies

From time to time, we may be involved in legal proceedings, as well as demands, claims and threatened litigation, which arise in the normal course of our business or otherwise. The ultimate outcome of any litigation is uncertain and unfavorable outcomes could have a negative impact on our results of operations and financial condition. Regardless of outcome, litigation can have an adverse impact on us because of the defense costs, diversion of management resources and other factors. We are not currently involved in any material legal proceedings.

 

 

7.

Stockholders’ Equity

The following shares of common stock were reserved for future issuance as of June 30, 2016:

 

 

Total Shares Reserved

 

2014 Equity Incentive Plan

 

9,247,174

 

2014 Employee Stock Purchase Plan

 

663,667

 

Total reserved shares of common stock

 

9,910,841

 

11


 

 

Restricted Stock Awards

In August 2012 and March 2013, our chief executive officer and one other Atara employee purchased RSAs with certain vesting conditions. As of June 30, 2016, 1,245,240 of these shares had vested and are reported as shares outstanding in the financial statements. The remaining 90,144 shares are expected to fully vest in 2016. Stock-based compensation expense related to the RSAs is recorded using accelerated graded vesting model and was $0.1 million and $0.3 million for the three months ended June 30, 2016 and 2015, respectively, and $0.2 million and $0.6 million for the six months ended June 30, 2016 and 2015, respectively. The unrecognized stock-based compensation expense related to unvested RSAs was $34,000 as of June 30, 2016 and this expense is expected to be recognized in 2016. The aggregate intrinsic value of unvested RSAs was $2.0 million as of June 30, 2016.

2014 Equity Incentive Plan (2014 EIP)

Our 2014 EIP permits the issuance of options, RSAs, RSUs and other types of awards to employees, directors and consultants.  

In June 2016, our stockholders approved an increase of 4,000,000 shares to the shares reserved for issuance under the 2014 EIP. As of June 30, 2016, a total of 9,247,174 shares of common stock were reserved for issuance under the 2014 Plan, of which 4,370,250 were subject to outstanding options and RSUs and 4,876,924 shares were available for future grant.  

Restricted Stock Awards and Units

The following is a summary of RSA and RSU activity under our 2014 EIP:

 

 

 

RSAs

 

 

RSUs

 

 

 

Shares

 

 

Weighted Average Grant Date Fair Value

 

 

Shares

 

 

Weighted Average Grant Date Fair Value

 

Unvested as of December 31, 2015

 

 

48,317

 

 

$

0.40

 

 

 

427,605

 

 

$

7.86

 

Granted

 

 

 

 

 

 

 

 

 

642,697

 

 

$

15.78

 

Forfeited

 

 

 

 

 

 

 

 

 

(44,333

)

 

$

11.83

 

Vested

 

 

(32,211

)

 

$

0.40

 

 

 

(103,400

)

 

$

6.31

 

Unvested as of June 30, 2016

 

 

16,106

 

 

$

0.40

 

 

 

922,569

 

 

$

13.36

 

Vested and unreleased

 

 

 

 

 

 

 

 

 

 

23,582

 

 

 

 

 

Outstanding as of June 30, 2016

 

 

 

 

 

 

 

 

 

 

946,151

 

 

 

 

 

 

As of June 30, 2016, there was $8.9 million of unrecognized stock-based compensation expense related to RSUs that is expected to be recognized over a weighted average period of 1.7 years. The aggregate intrinsic value of the RSUs outstanding as of June 30, 2016 was $21.3 million. Under our RSU net settlement procedures, we withhold shares at settlement to cover the minimum payroll withholding tax obligations. During the six months ended June 30, 2016, we settled 104,653 RSUs, of which 101,355 RSUs were net settled by withholding 3,298 shares.  The value of the RSUs withheld was approximately $53,000 based on the closing price of our common stock on the settlement date. These amounts were remitted to the appropriate taxing authorities and have been reflected as a financing activity in our condensed consolidated statements of cash flows.

 

12


 

Stock Options

The following is a summary of option activity under our 2014 EIP:

 

 

 

Number of shares

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term (Years)

 

 

Aggregate Intrinsic Value

(in thousands)

 

Outstanding as of December 31, 2015

 

 

3,137,529

 

 

$

25.81

 

 

 

 

 

 

 

 

 

Granted

 

 

462,600

 

 

$

19.99

 

 

 

 

 

 

 

 

 

Exercised

 

 

(2,444

)

 

$

11.82

 

 

 

 

 

 

 

 

 

Forfeited or expired

 

 

(173,586

)

 

$

25.39

 

 

 

 

 

 

 

 

 

Outstanding as of June 30, 2016

 

 

3,424,099

 

 

$

25.12

 

 

 

6.04

 

 

$

7,120

 

Vested and expected to vest as of June 30, 2016

 

 

3,424,099

 

 

$

25.12

 

 

 

6.04

 

 

$

7,120

 

Exercisable as of June 30, 2016

 

 

702,649

 

 

$

22.36

 

 

 

5.60

 

 

$

2,451

 

 

Aggregate intrinsic value represents the difference between the closing stock price of our common stock on June 30, 2016 and the exercise price of outstanding, in-the-money options. As of June 30, 2016, there was $36.5 million of unrecognized stock-based compensation expense related to stock options that is expected to be recognized over a weighted average period of 3.0 years.  Options for 2,444 and 2,595 shares of our common stock were exercised during the six months ended June 30, 2016 and 2015, with an intrinsic value of $26,000 for each period.

The fair value of each option issued was estimated at the date of grant using the Black-Scholes valuation model. The following table summarizes the weighted-average assumptions used as inputs to the Black-Scholes model, and resulting weighted-average grant date fair values of stock options granted during the period indicated:

 

 

Six months ended June 30, 2016

 

 

Six months ended June 30, 2015

 

 

Employees

 

 

Consultants

 

 

Employees

 

 

Consultants

 

Assumptions:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expected term (years)

 

4.5

 

 

 

6.9

 

 

 

4.5

 

 

 

6.9

 

Expected volatility

 

68.9

%

 

 

66.1

%

 

 

71.2

%

 

 

70.1

%

Risk-free interest rate

 

1.4

%

 

 

1.7

%

 

 

1.3

%

 

 

1.6

%

Expected dividend yield

 

0.0

%

 

 

0.0

%

 

 

0.0

%

 

 

0.0

%

Fair Value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average estimated grant date fair

   value per share

$

11.04

 

 

$

11.57

 

 

$

15.31

 

 

$

16.66

 

Options granted

 

453,600

 

 

 

9,000

 

 

 

800,099

 

 

 

2,000

 

Total estimated grant date fair value

$

5,006,000

 

 

$

104,000

 

 

$

12,248,000

 

 

$

33,000

 

      

 

The estimated fair value of stock options that vested during the six months ended June 30, 2016 and 2015 was $6.3 million and $1.1 million, respectively.

13


 

2014 Employee Stock Purchase Plan (“2014 ESPP”)

As of June 30, 2016, there were 663,667 shares authorized for issuance under the 2014 ESPP. The 2014 ESPP permits eligible employees to purchase common stock at a discount through payroll deductions during defined offering periods. Eligible employees can purchase shares of the Company’s common stock at 85% of the lower of the fair market value of the common stock at (i) the beginning of a 12-month offering period, or (ii) at the end of one of the two related 6-month purchase periods. No participant in the 2014 ESPP may be issued or transferred shares of common stock valued at more than $25,000 per calendar year. In the three months ended June 30, 2016, an offering commenced for the period from June 1, 2016 through May 31, 2017, and the Company recorded $0.1 million stock-based compensation expense. There were no purchases of shares under the 2014 ESPP in the three months ended June 30, 2016.

Stock-based Compensation Expense

Total stock-based compensation expense related to all employee and non-employee awards was as follows:

 

 

Three months ended June 30,

 

 

Six months ended June 30,

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

 

(in thousands)

 

 

(in thousands)

 

Research and development

$

2,434

 

 

$

1,251

 

 

$

4,681

 

 

$

2,540

 

General and administrative

 

2,701

 

 

 

1,318

 

 

 

5,179

 

 

 

2,513

 

Total stock-based compensation expense

$

5,135

 

 

$

2,569

 

 

$

9,860

 

 

$

5,053

 

 

 

14


 

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

 

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 together with our unaudited condensed consolidated financial statements and related notes included elsewhere in our Quarterly Report on Form 10-Q for the quarter ended June 30, 2016. This discussion and other parts of this Quarterly Report contain forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

Overview

We are a clinical-stage biopharmaceutical company focused on developing meaningful therapies for patients with severe and life-threatening diseases that have been underserved by scientific innovation. We have two groups of product candidates: (a) allogeneic, or third-party derived, antigen-specific T-cells, and (b) molecularly targeted biologics. Our most advanced product candidate, EBV-CTL, is expected to enter two pivotal trials by the end of 2016. We have additional product candidates at various stages of development.

T-cells are a type of white blood cell, and cytotoxic T-cells, otherwise known as cytotoxic T lymphocytes, or CTLs, can mount an immune response against an antigen or antigens in order to combat viral infection or disease. Our clinical stage T-cell product candidates use cells from healthy donors.  These cells are trained to recognize an antigen, expanded, characterized, banked, and held as inventory. The cells are then partially human leukocyte antigen, or HLA-matched to a patient in need, providing an “off-the-shelf” cellular therapeutic. We licensed rights to these product candidates from Memorial Sloan Kettering Cancer Center, or MSK, in June 2015.

Our initial T-cell product candidates are CTLs that target viral- or cancer-specific antigens and are designed to harness the body’s immune system to counteract specific viral infections and cancers. Our most advanced T-cell product candidate, EBV-CTL, is entering into pivotal trials for Epstein-Barr virus, or EBV-associated post-transplant lymphoproliferative disorders, or EBV-PTLD. EBV-PTLD is a cancer affecting some patients who have received an allogeneic hematopoietic cell transplant, or HCT, a solid organ transplant, or SOT, or are otherwise immunocompromised. Both of these pivotal trials are on track to commence by the end of 2016.   In June 2016, we opened a multi-center expanded access protocol, or EAP, trial of EBV-CTL at several transplant centers.  The EAP is intended to provide access to patients with EBV-PTLD in advance of opening our pivotal trials, and ensure continued availability of EBV-CTL to patients who do not qualify for enrollment into the pivotal clinical trials.

In February 2015, the FDA granted breakthrough therapy designation for EBV-CTL in the treatment of rituximab-refractory EBV-PTLD after HCT. Breakthrough therapy designation is an FDA process designed to accelerate the development and review of drugs intended to treat a serious condition when early trials show that the drug may be substantially better than current treatment. In February 2016, the FDA granted orphan drug designation for EBV-CTL for the treatment of patients with EBV-PTLD after HCT or SOT, and in March 2016, the European Medicines Agency, or EMA, granted orphan drug designation for EBV-CTL for the treatment of patients with EBV-PTLD. EBV-CTL was accepted into the EMA’s Adaptive Licensing Program and in June 2016, the EMA classified our EBV-CTL product candidate as an Advanced Therapy Medicinal Product, or ATMP. ATMP classification was established to regulate cell and gene therapy, support development of these products and provide a benchmark for the level of quality compliance for pharmaceutical practices.  It can also provide developers with scientific regulatory guidance, help clarify the applicable regulatory framework and development path, provide access to all relevant services and incentives offered by the EMA and can also be advantageous when submitting clinical trial dossiers to national EU regulatory authorities. For EBV-CTL for EBV-PTLD, we are planning to receive parallel Scientific Advice from the EMA and health technology assessment groups in the fourth quarter of this year.

 

We are also developing EBV-CTLs in other indications such as nasopharyngeal carcinoma, or NPC.  Our collaborating investigator, MSK, presented clinical results on the use of EBV-CTLs in patients with recurrent NPC at the June 2016 American Society of Clinical Oncology, or ASCO, Annual Meeting.  The data presented demonstrated an objective response for an allogeneic cellular therapy in patients with solid tumors. We expect to initiate a Phase 2 clinical trial evaluating EBV-CTLs in combination with another anti-cancer therapy for the treatment of NPC in 2017.  

Our second T-cell product candidate, CMV-CTL, is in Phase 2 clinical trials for cytomegalovirus, or CMV, an infection that occurs in some patients who have received an HCT or SOT or are otherwise immunocompromised. In the first quarter of 2016, we transferred the investigational new drug application, or IND, from MSK to us. We expect to meet with the FDA in the fourth quarter of 2016 to discuss late phase development with CMV-CTLs to support approval for the treatment of patients with anti-viral refractory or resistant CMV infection following HCT.

15


 

Our third T-cell product candidate, WT1-CTL, targets cancers expressing the antigen Wilms Tumor 1, or WT1, and is currently in Phase 1 clinical trials. At the 2015 American Society of Hematology, or ASH, Annual Meeting, MSK presented results from this Phase 1 clinical trial of primary donor-derived WT1-CTLs. In this trial, response assessments were conducted utilizing criteria consistent with those defined by the International Myeloma Working Group.

 

·

Patients with relapsed-refractory MM, including PCL were treated with allogeneic HCT followed by primary HCT donor derived WT1-CTLs.

 

·

At one year, a response rate of greater than 50% was observed in these patients and among the three patients with PCL who received WT1-CTL, all three achieved a complete response.

 

·

Two patients who developed a complete response remain in remission after more than one year.

 

·

There were no serious adverse events reported related to treatment with WT1-CTLs.

Based on data from these trials, we expect to explore the clinical utility of WT1-CTL in these hematologic malignancies, including PCL.

In October 2015, we entered into exclusive license and research agreements with QIMR Berghofer Medical Research Institute, or QIMR Berghofer. These agreements enable us to access a technology complementary to that which was licensed from MSK and to pursue development of EBV and CMV-CTLs for other indications such as NPC, gastric cancer and multiple sclerosis, or MS. We are working with QIMR Berghofer to initiate clinical trials utilizing allogeneic CTLs in these new indications.

While we evaluate the path to registration for both EBV-CTL and CMV-CTL, we intend to concurrently explore the clinical utility of these T-cell product candidates or other cellular therapies in other relevant disease states to expand their potential applicability. In addition, we believe that T-cells can be directed at a broad range of other targets to create future product candidates. We believe that viral antigens are well suited to adoptive immunotherapy given that people with normal immune systems are able to mount robust responses to these viral targets, but immunocompromised patients and some cancer patients are not.

Our molecularly targeted product candidates are biologics that inhibit myostatin and activin, members of the Transforming Growth Factor-Beta, or TGF-ß, protein superfamily, which play roles in the growth and maintenance of muscle and many other body tissues. Our lead molecularly targeted product candidate is STM 434, which has received orphan drug designation from the FDA for ovarian cancer. We commenced a Phase 1 clinical trial of STM 434 for ovarian cancer and other solid tumors in 2014. The dose escalation stage of our Phase 1 trial for STM-434 is ongoing. We expect to begin the monotherapy dose expansion phase at the end of this year in patients with advanced granulosa cell or clear cell ovarian cancer. At the June 2016 ASCO meeting, we presented initial data from the dose escalation part of the Phase 1 clinical trial.  We reported that stable disease up to 12 months in duration was observed in 20% of patients, including four granulosa cell tumor patients.  The stable disease rate in granulosa cell tumor patients was 40%. We also reported that increasing doses of STM 434 were associated with modulation of cachexia as assessed by changes in lean body mass and six minute walk distance test.  The most common treatment emergent adverse events were fatigue, epistaxis, or bleeding from the nose, and abdominal pain.  Adverse events were generally deemed grade 1-2 in severity.

STM 434 is a novel molecule with a well-characterized mechanism of action. It was developed initially, along with our other in-licensed molecularly targeted biologic product candidates, at Amgen. Taken together, we believe these product candidates constitute a pipeline of biologics that have benefited from years of investment, resulting in a large patent portfolio, with broad pre-clinical testing. Where appropriate, we intend to conduct preclinical studies and file INDs with the FDA for these candidates.

We do not yet manufacture any of our product candidates.  We currently outsource the manufacturing of drug substance and drug product for our preclinical studies and clinical trials. We also outsource fill-finish, packaging, labeling, storage, shipping and distribution. This approach has allowed us to rapidly conduct manufacturing activities for multiple programs in parallel. It has also allowed us to balance the requirements of multiple programs and avoid costly investment in manufacturing infrastructure and personnel before clinical data are available. In selecting contract manufacturing organizations (each a “CMO”) to manufacture our product candidates, we generally strive to select the CMO based on the particular technical needs of the product candidate. In addition, we aim to work with CMOs that possess the requisite scale, expertise and experience to support clinical as well as commercial product manufacturing, which may mitigate the need for costly and time-consuming process transfers later in development.

In December 2015, we announced results from our Phase 2 proof-of-concept clinical trial of PINTA 745 for the treatment of protein energy wasting in patients with end stage renal disease.  The trial did not meet its primary endpoint, and we returned the rights to this program to Amgen in June 2016.

16


 

We have a limited operating history. Since our inception in 2012, we have devoted substantially all of our resources to identify, acquire and develop our product candidates, including conducting preclinical studies and clinical trials and providing general and administrative support for these operations.

We have never generated revenues and have incurred losses since inception. Our net loss was $35.4 million for the six months ended June 30, 2016, and as of June 30, 2016, we had an accumulated deficit of $133.6 million. Substantially all of our net losses have resulted from costs incurred in connection with our research and development programs and from general and administrative expenses associated with our operations. As of June 30, 2016, our cash, cash equivalents and short-term investments totaled $294.6 million, which we intend to use to fund our operations.

17


 

Financial Overview

Revenues

To date, we have not generated any revenues. We do not expect to receive any revenues from any product candidates that we develop until we obtain regulatory approval and commercialize our products or enter into collaborative agreements with third parties.

Research and Development Expenses

The largest component of our total operating expenses since inception has been our investment in research and development activities, including the preclinical and clinical development of our product candidates. Research and development expenses consist primarily of compensation and benefits for research and development employees, including stock-based compensation; expenses incurred under agreements with contract research organizations and investigative sites that conduct clinical trials and preclinical studies; the costs of acquiring and manufacturing clinical trial materials and other supplies; payments under licensing agreements; other outside services and consulting costs; and an allocation of facilities and overhead expenses. Research and development costs are expensed as incurred.

We plan to increase our research and development expenses as we continue the development of our product candidates. Our current planned research and development activities include the following:

 

·

advancing EBV-CTLs into Phase 3 clinical trials for the treatment of EBV-PTLD after HCT and SOT;

 

·

developing CMV-CTL in antiviral refractory CMV infection after HCT;

 

·

continuing development of WT1-CTL in relapsed refractory multiple myeloma, including plasma cell leukemia;

 

·

collaborating with MSK and QIMR Berghofer in the discovery and development of additional T-cell programs;

 

·

expanding our licensed T-cell platforms into other indications, including NPC and MS or additional viral targets;

 

·

completing our Phase 1 clinical trial of STM 434;

 

·

process development and manufacturing of drug supply to support clinical trials and IND-enabling studies;

 

·

evaluating our other molecularly targeted product candidates and advancing them into the clinic as appropriate; and

 

·

leveraging our relationships and experience to in-license or acquire additional product candidates or technologies.

In addition, we believe it is important to invest in the development of new product candidates to continue to build the value of our product candidate pipeline and our business. We plan to continue to advance our most promising early product candidates into preclinical development with the objective to advance these early-stage programs to human clinical trials over the next several years.

Our expenditures on current and future preclinical and clinical development programs are subject to numerous uncertainties in timing and cost to completion. The duration, costs, and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:

 

·

the scope, rate of progress, and expenses of our ongoing as well as any additional clinical trials and other research and development activities;

 

·

future clinical trial results;

 

·

uncertainties in clinical trial enrollment rates or discontinuation rates of patients;

 

·

potential additional safety monitoring or other studies requested by regulatory agencies;

 

·

significant and changing government regulation; and

 

·

the timing and receipt of any regulatory approvals.

18


 

The process of conducting the necessary clinical research to obtain FDA approval is costly and time consuming and the successful development of our product candidates is highly uncertain. The risks and uncertainties associated with our research and development projects are discussed more fully in the section of this report titled “1A.  Risk Factors.” As a result of these risks and uncertainties, we are unable to determine with any degree of certainty the duration and costs to complete our research and development projects, or if, when, or to what extent we will generate revenues from the commercialization and sale of any of our product candidates that obtain regulatory approval. We may never succeed in achieving regulatory approval for any of our product candidates.

General and Administrative Expenses

General and administrative expenses consist primarily of compensation and benefits for general and administrative employees, including stock-based compensation; outside professional service costs, including legal, patent, human resources, audit and accounting services; and allocated facilities costs. We anticipate that our general and administrative expenses will continue to increase in the future as we increase our headcount to support our continued research and development and potential commercialization of our product candidates.

Interest and Other Income, net

Interest and other income, net consists primarily of interest earned on our cash, cash equivalents and short-term investments.

Critical Accounting Policies and Significant Judgments and Estimates

There have been no significant changes during the six months ended June 30, 2016 to our critical accounting policies and significant judgments and estimates as disclosed in our management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2015.

Emerging Growth Company Status

We are an “emerging growth company” as defined in the JOBS Act, and therefore we may take advantage of certain exemptions from various public company reporting requirements. As an “emerging growth company”,

 

·

we will avail ourselves of the exemption from the requirement to obtain an attestation and report from our auditors on the assessment of our internal control over financial reporting pursuant to the Sarbanes-Oxley Act;

 

·

we will provide less extensive disclosure about our executive compensation arrangements; and

 

·

we will not require stockholder non-binding advisory votes on executive compensation or golden parachute arrangements.

However, we are choosing to irrevocably opt out of the extended transition periods available under the JOBS Act for complying with new or revised accounting standards. We will remain an “emerging growth company” for up to five years, although we will cease to be an “emerging growth company” upon the earliest of: (1) December 31, 2019; (2) the last day of the first fiscal year in which our annual gross revenues are $1 billion or more; (3) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities; and (4) the date on which we are deemed to be a “large accelerated filer” as defined in the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

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Results of Operations

Comparison of the Three and Six Months Ended June 30, 2016 and 2015

Research and development expenses

Research and development expenses consisted of the following costs, by program:

 

 

 

Three months ended June 30,

 

 

Increase

 

 

Six months ended June 30,

 

 

Increase

 

 

 

2016

 

 

2015

 

 

(Decrease)

 

 

2016

 

 

2015

 

 

(Decrease)

 

 

 

(in thousands)

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

EBV-CTL

 

$

1,362

 

 

$

3

 

 

$

1,359

 

 

$

3,352

 

 

$

62

 

 

$

3,290

 

CMV-CTL

 

 

359

 

 

 

 

 

 

359

 

 

 

374