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 March 31, 2015

OR

¨

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

For the transition period from              to             

001-36548

(Commission file number)

 

ATARA BIOTHERAPEUTICS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

46-0920988

(State of incorporation)

 

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

 

701 Gateway Blvd., Suite 200

South San Francisco, CA

 

94080

(Address of principal executive offices)

 

(Zip code)

(650) 278-8930

(Registrant’s telephone number, including area code)

 

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 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 definitions 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

¨

Non-accelerated filer

x

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 shares of the registrant’s Common Stock outstanding as of April 30, 2015 was 24,364,115 shares.

 

 

 

 

 


 

ATARA BIOTHERAPEUTICS, INC.

INDEX

 

 

  

 

  

Page

PART I.

  

FINANCIAL INFORMATION

  

 

 

 

 

Item 1.

  

Financial statements (Unaudited)

  

3

 

 

 

 

  

Condensed Consolidated and Combined Balance Sheets

  

3

 

 

 

 

  

Condensed Consolidated and Combined Statements of Operations and Comprehensive Loss

  

4

 

 

 

 

  

Condensed Consolidated and Combined Statements of Cash Flows

  

5

 

 

 

 

  

Notes to Condensed Consolidated and Combined 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

  

20

 

 

 

Item 4.

  

Controls and Procedures

  

20

 

 

 

 

PART II.

  

OTHER INFORMATION

  

 

 

 

 

 

Item 1.

  

Legal Proceedings

  

21

 

 

 

 

Item 1A.

  

Risk Factors

  

22

 

 

 

 

Item 2.

  

Unregistered Sales of Equity Securities and Use of Proceeds

  

52

 

Item 3.

  

Defaults Upon Senior Securities

  

52

 

Item 4.

  

Mine Safety Disclosures

  

52

 

Item 5.

  

Other information

  

52

 

Item 6.

  

Exhibits

  

53

 

 

 

 

  

Signatures

  

54

 

 

 

 

  

Index to Exhibits

  

55

 

 

 

 

 

2


 

Atara Biotherapeutics, Inc.

Condensed Consolidated and Combined Balance Sheets

(Unaudited)

(In thousands, except share and per share amounts)

 

 

March 31,

 

 

December 31,

 

 

2015

 

 

2014

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

71,329

 

 

$

21,897

 

Short-term available-for-sale investments

 

95,367

 

 

 

82,219

 

Prepaid expenses and other current assets

 

2,995

 

 

 

1,910

 

Total current assets

 

169,691

 

 

 

106,026

 

Property and equipment, net

 

47

 

 

 

48

 

Other assets

 

79

 

 

 

48

 

Total assets

$

169,817

 

 

$

106,122

 

 

 

 

 

 

 

 

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

794

 

 

$

440

 

Accrued compensation

 

522

 

 

 

1,225

 

Income tax payable

 

1

 

 

 

1

 

Other accrued liabilities

 

2,197

 

 

 

1,058

 

Total current liabilities

 

3,514

 

 

 

2,724

 

Other long-term liabilities

 

209

 

 

 

216

 

Total liabilities

 

3,723

 

 

 

2,940

 

 

 

 

 

 

 

 

 

Commitments and contingencies (Note 5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock—$0.0001 par value, 20,000,000 authorized; none issued and

    outstanding as of March 31, 2015 and December 31, 2014

 

 

 

 

 

Common stock—$0.0001 par value, 23,911,930 and 19,692,937 shares issued and

    outstanding as of March 31, 2015 and December 31, 2014, respectively

 

2

 

 

 

2

 

Additional paid-in capital

 

216,159

 

 

 

144,169

 

Accumulated other comprehensive loss

 

(18

)

 

 

(100

)

Accumulated deficit

 

(50,049

)

 

 

(40,889

)

Total stockholders’ equity

 

166,094

 

 

 

103,182

 

Total liabilities and stockholders’ equity

$

169,817

 

 

$

106,122

 

 

See accompanying notes.

 

3


 

Atara Biotherapeutics, Inc.

Condensed Consolidated and Combined Statements of Operations and Comprehensive Loss

(Unaudited)

(In thousands, except share and per share amounts)

 

 

 

 

Three months ended

 

 

 

 

March 31,

 

 

 

 

2015

 

 

2014

 

 

Expenses:

 

 

 

 

 

 

 

 

 

Research and development

 

$

5,767

 

 

$

2,981

 

 

General and administrative

 

 

3,544

 

 

 

4,096

 

 

Total operating expenses

 

 

9,311

 

 

 

7,077

 

 

Loss from operations

 

 

(9,311

)

 

 

(7,077

)

 

Interest and other income

 

 

153

 

 

 

6

 

 

Loss before provision for income taxes

 

 

(9,158

)

 

 

(7,071

)

 

Provision (benefit) for income taxes

 

 

2

 

 

 

(22

)

 

Net loss

 

$

(9,160

)

 

$

(7,049

)

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive gain (loss), net of tax:

 

 

 

 

 

 

 

 

 

Unrealized gains (losses) on investments

 

 

82

 

 

 

(11

)

 

Other comprehensive gain (loss)

 

 

82

 

 

 

(11

)

 

Comprehensive loss

 

$

(9,078

)

 

$

(7,060

)

 

 

 

 

 

 

 

 

 

 

 

Net loss per common share:

 

 

 

 

 

 

 

 

 

Basic and diluted net loss per common share

 

$

(0.42

)

 

$

(5.58

)

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding used to calculate basic and diluted net loss per common share

 

 

21,918,467

 

 

 

1,263,316

 

 

See accompanying notes.

4


 

Atara Biotherapeutics, Inc.

Condensed Consolidated and Combined Statements of Cash Flows

(Unaudited)

(In thousands)

 

Three months

 

 

ended March 31,

 

 

2015

 

 

2014

 

Operating activities

 

 

 

 

 

 

 

Net loss

$

(9,160

)

 

$

(7,049

)

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

 

 

 

 

 

 

 

   Depreciation expense

 

6

 

 

 

1

 

   Investment premium amortization, net

 

358

 

 

 

16

 

   Stock-based compensation expense

 

2,483

 

 

 

3,317

 

   Interest accrued on notes receivable from stockholder

 

 

 

 

(1

)

   Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Other assets

 

(31

)

 

 

1

 

Prepaid expenses and other current assets

 

(1,081

)

 

 

44

 

Accounts payable

 

354

 

 

 

421

 

Income tax payable

 

 

 

 

(92

)

Other accrued liabilities

 

1,139

 

 

 

557

 

Accrued compensation

 

(703

)

 

 

(132

)

Other long-term liabilities

 

13

 

 

 

 

Net cash used in operating activities

 

(6,622

)

 

 

(2,917

)

Investing activities

 

 

 

 

 

 

 

Purchase of short-term investments

 

(54,796

)

 

 

(22,414

)

Maturities of short-term investments

 

41,368

 

 

 

 

Purchase of property and equipment

 

(5

)

 

 

(1

)

Net cash used in investing activities

 

(13,433

)

 

 

(22,415

)

Financing activities

 

 

 

 

 

 

 

Proceeds from sale of common stock, net of offering costs

 

69,487

 

 

 

 

Repayment of notes receivable from stockholder

 

 

 

 

37

 

Proceeds from sale of convertible preferred stock

 

 

 

 

13,500

 

Offering costs incurred in connection with sale of convertible preferred stock

 

 

 

 

(19

)

Offering costs incurred in anticipation of initial public filing

 

 

 

 

(47

)

Net cash provided by financing activities

 

69,487

 

 

 

13,471

 

Increase (decrease) in cash and cash equivalents

 

49,432

 

 

 

(11,861

)

Cash and cash equivalents-beginning of period

 

21,897

 

 

 

51,615

 

Cash and cash equivalents-end of period

$

71,329

 

 

$

39,754

 

 

 

 

 

 

 

 

 

Non-cash financing activities

 

 

 

 

 

 

 

Issuance of common stock upon vesting of stock awards

$

20

 

 

$

20

 

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

$

(20

)

 

$

(20

)

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

$

 

 

$

510

 

Supplemental cash flow disclosure—Cash paid for taxes

$

2

 

 

$

70

 

See accompanying notes.

 

5


 

Atara Biotherapeutics, Inc.

Notes to Condensed Consolidated and Combined Financial Statements

(Unaudited)

 

1.

Organization and Description of Business

Atara Biotherapeutics, Inc. (“Atara”, “we” or “our”) was incorporated in August 2012 in Delaware. We are a biopharmaceutical company focused on developing innovative therapies for patients with debilitating diseases. Atara’s lead programs target myostatin and activin, members of the TGF-beta family of proteins that have demonstrated the potential to have therapeutic benefit in a number of clinical indications. Our product candidate portfolio was acquired through licensing arrangements with Amgen Inc. (“Amgen”) in exchange for convertible preferred stock, milestone payments and commitments for future royalties. See Note 4 for further information.

Public Offerings

In October 2014, we completed our initial public offering of 5,750,000 shares of common stock, including 750,000 shares from the exercise by the underwriters of their overallotment option, at an offering price to the public of $11.00 per share. We received net proceeds of approximately $55.8 million, after deducting underwriting discounts and commissions and offering expenses. In connection with the initial public offering, the Company’s outstanding shares of convertible preferred stock were automatically converted into 12,298,515 shares of common stock, resulting in the reclassification of $74.6 million from mezzanine equity to additional paid-in capital.

In February 2015, we completed a follow-on offering of 4,147,358 shares of common stock at an offering price to the public of $18.00 per share.  We received net proceeds of approximately $69.5 million, after deducting underwriting discounts and commissions and offering expenses.

    

2.

Summary of Significant Accounting Policies

Basis of Presentation and Recapitalization

The accompanying interim condensed consolidated and combined financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”). The accounting policies followed in the preparation of the interim condensed consolidated and combined financial statements are consistent in all material respects with those presented in Note 2 to the consolidated and combined financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

Atara was originally formed as a management company with the sole purpose of providing management, financial and administrative services for Nina Biotherapeutics, Inc. (“Nina”), Santa Maria Biotherapeutics, Inc. (“Santa Maria”) and Pinta Biotherapeutics, Inc. (“Pinta”).  Prior to March 31, 2014, the accompanying financial statements include the operations of Atara, Nina, Pinta and Santa Maria on a combined basis as the four individual companies were under common ownership and common management since inception. All intercompany transactions have been eliminated.

On March 31, 2014, our boards of directors approved and we implemented a recapitalization (the “Recapitalization”) in which (a) all the outstanding shares of common stock of Atara were cancelled and forfeited by existing stockholders and (b) the stockholders of Nina, Pinta and Santa Maria exchanged their existing common and convertible preferred stock for newly-issued shares of Atara, with the same rights and privileges as the outstanding capital stock of Nina, Pinta and Santa Maria. The shares were exchanged on a collective nine-for-one basis. The Recapitalization lacked economic substance as the newly-issued shares have the same rights and privileges as the previously outstanding capital stock of Nina, Pinta and Santa Maria and there was no change in ownership percentages of the individual stockholders. As a result of the Recapitalization, Nina, Pinta and Santa Maria became wholly owned subsidiaries of Atara effective March 31, 2014. The Recapitalization is considered a tax-free exchange for US federal income tax purposes.

Because the four individual companies were under common ownership and the Recapitalization lacked economic substance, we accounted for the Recapitalization as a combination of businesses under common control. The assets and liabilities of Nina, Pinta and Santa Maria were recorded by Atara at their historical carrying amounts on March 31, 2014 and beginning March 31, 2014, the financial statements of the Company are presented on a consolidated basis.  

6


 

Liquidity

We have incurred significant operating losses since inception and have relied on public and private equity financings to fund our operations. At March 31, 2015, we had an accumulated deficit of $50.0 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 existing cash and cash equivalents as of March 31, 2015 will be sufficient to fund our current operating plan for at least the next twelve months.

Net Loss per Common Share

Basic and diluted net loss per common share is presented, giving effect to the Recapitalization, including cancellation of existing Atara common stock and a nine-for-one share exchange. Basic net loss per common share is calculated by dividing the net loss by the weighted-average number of shares of common stock outstanding during the period, without consideration of common stock equivalents. Diluted net loss per common share is computed by dividing the 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. Our convertible preferred stock and restricted stock awards are considered to be participating securities as they are entitled to participate in undistributed earnings with shares of common stock. Due to net losses, there is no impact on the net loss per common share calculation in applying the two-class method since the participating securities have no legal requirement to share in any losses.

Potential dilutive securities, which include convertible preferred stock, unvested restricted common stock awards, unvested restricted stock units and vested and unvested options have been excluded from the computation of diluted net loss per share as the effect would be to reduce the net loss per common share and be 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 shares of potentially dilutive securities give effect to the Recapitalization, and have been excluded from the computations of diluted net loss per common share as the effect of including such securities would be antidilutive:

 

 

Three months

 

 

ended March 31,

 

 

2015

 

 

2014

 

Convertible preferred stock

 

 

 

 

12,147,786

 

Unvested restricted common stock

 

487,836

 

 

 

774,374

 

Unvested restricted stock units

 

632,838

 

 

 

 

Vested and unvested options

 

340,444

 

 

 

 

 

 

1,461,118

 

 

 

12,922,160

 

 

In addition, 72,567 options have been excluded from the above table as the exercise prices of the underlying options were greater than the average fair value of our common stock for the periods presented.

 

 

Recent Accounting Pronouncements

In August 2014, the Financial Accounting Standards Board (the “FASB”) issued a new accounting standard to provide guidance on the presentation of management’s plans, when conditions or events raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued.  The new standard is effective for fiscal years ending after December 15, 2016.  The adoption of this standard is not expected to have a material impact on our financial statements.

In May 2014, the FASB issued a new accounting standard, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in the current standard, Revenue Recognition.  The new standard is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  It also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.  In April 2015, the FASB voted to propose to defer the effective date of this standard by one year to December 2017.  We will evaluate the application of this standard on our financial statements and disclosures when the standard becomes effective.

 

7


 

3.Fair Value of Financial Instruments

Our financial assets and liabilities carried at fair value are primarily comprised of investments in money market funds, corporate bonds, U.S. government securities, asset-backed securities and commercial paper. The fair value accounting guidance requires that assets and liabilities be carried at fair value and classified in one of the following three categories:

 

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 were no transfers between Level 1, Level 2, and Level 3 for all periods presented.

The following table represents the fair value hierarchy for our financial assets and financial liabilities measured at fair value on a recurring basis:  

 

 

 

 

 

 

Quoted

 

 

Significant

 

 

 

 

 

 

 

Prices in

 

 

Other

 

 

 

Total

 

 

Active Markets

 

 

Observable Inputs

 

 

 

Fair Value

 

 

(Level 1)

 

 

(Level 2)

 

 

 

(in thousands)

 

At March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

71,329

 

 

$

71,329

 

 

$

 

Short-term available-for-sale investments:

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

62,067

 

 

$

 

 

$

62,067

 

Agency bonds

 

 

17,149

 

 

 

 

 

 

17,149

 

Treasury bonds

 

 

466

 

 

 

 

 

 

466

 

Asset-backed securities

 

 

15,685

 

 

 

 

 

 

15,685

 

Total short-term available-for-sale investments

 

$

95,367

 

 

$

 

 

$

95,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

18,141

 

 

$

18,141

 

 

$

 

Agency bonds

 

 

1,750

 

 

 

 

 

 

1,750

 

Corporate bonds

 

 

2,006

 

 

 

 

 

 

2,006

 

Total cash equivalents

 

$

21,897

 

 

$

18,141

 

 

$

3,756

 

Short-term available-for-sale investments:

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

 

$

57,958

 

 

$

 

 

$

57,958

 

Agency bonds

 

 

10,764

 

 

 

 

 

 

10,764

 

Treasury bonds

 

 

465

 

 

 

 

 

 

465

 

Commercial paper

 

 

1,200

 

 

 

 

 

 

1,200

 

Asset-backed securities

 

 

11,832

 

 

 

 

 

 

11,832

 

Total short-term available-for-sale investments

 

$

82,219

 

 

$

 

 

$

82,219

 

 

Financial assets and liabilities are considered Level 2 when their fair values are determined using inputs that are observable in the market or can be derived principally from or corroborated by observable market data such as pricing for similar securities, recently executed transactions, cash flow models with yield curves, and benchmark securities. In addition, Level 2 financial instruments are valued using comparisons to like-kind financial instruments and models that use readily observable market data as their basis. Corporate bonds, U.S. government securities, asset-backed securities and commercial paper are valued primarily using market prices of comparable securities, bid/ask quotes, interest rate yields and prepayment spreads and are included in Level 2.

8


 

Financial assets and liabilities are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies, or similar techniques, and at least one significant model assumption or input is unobservable. We have no Level 3 financial assets and liabilities.

Available-for-sale investments are carried at fair value and are included in the tables above under short-term investments. The aggregate market value, cost basis, and gross unrealized gains and losses of available-for-sale investments by major security type are as follows:

 

 

Total

 

 

Total

 

 

Total

 

 

 

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Total

 

 

Cost

 

 

Gain

 

 

Loss

 

 

Fair Value

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

62,092

 

 

$

11

 

 

$

(36

)

 

$

62,067

 

Agency bonds

 

17,143

 

 

 

7

 

 

 

(1

)

 

 

17,149

 

Treasury bonds

 

466

 

 

 

 

 

 

 

 

 

466

 

Asset-backed securities

 

15,684

 

 

 

4

 

 

 

(3

)

 

 

15,685

 

Total short-term available-for-sale investments

$

95,385

 

 

$

22

 

 

$

(40

)

 

$

95,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

At December 31, 2014:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate bonds

$

58,046

 

 

$

1

 

 

$

(89

)

 

$

57,958

 

Agency bonds

 

10,769

 

 

 

 

 

 

(5

)

 

 

10,764

 

Treasury bonds

 

466

 

 

 

 

 

 

(1

)

 

 

465

 

Commercial paper

 

1,200

 

 

 

 

 

 

 

 

 

1,200

 

Asset-backed securities

 

11,838

 

 

 

2

 

 

 

(8

)

 

 

11,832

 

Total short-term available-for-sale investments

$

82,319

 

 

$

3

 

 

$

(103

)

 

$

82,219

 

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

 

 

 

Total

 

 

 

 

 

 

 

Amortized

 

 

Total

 

 

 

Cost

 

 

Fair Value

 

 

 

(in thousands)

 

At March 31, 2015:

 

 

 

 

 

 

 

 

Maturing within one year

 

$

54,252

 

 

$

54,232

 

Maturing in one to five years

 

 

41,133

 

 

 

41,135

 

Total short-term available-for-sale investments

 

$

95,385

 

 

$

95,367

 

 

 

 

 

 

 

 

 

 

At December 31, 2014:

 

 

 

 

 

 

 

 

Maturing within one year

 

$

56,752

 

 

$

56,714

 

Maturing in one to five years

 

 

25,567

 

 

 

25,505

 

Total short-term available-for-sale investments

 

$

82,319

 

 

$

82,219

 

 

 

4.

Significant Agreements

Related Party License Agreements - In September 2012, we entered into three license agreements with Amgen, one of our investors, for the development, manufacturing, use and distribution of products using certain proprietary compounds. Under the terms of these agreements, we paid $250,000 and issued 5,538,462 shares of Series A-1 convertible preferred stock (615,384 shares after giving effect to the Recapitalization) to Amgen. As described further in Note 5, we may also be required to make additional payments to Amgen based upon the achievement of specified development, regulatory, and commercial milestones, as well as mid-single-digit percentage royalties on future sales of products resulting from development of these purchased technologies, if any. 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.

9


 

At March 31, 2015, Amgen owns 6.0% of our outstanding voting capital stock. Amgen does not have any rights to participate in our product candidates’ development and is not represented on our boards of directors.

Exclusive Option Agreement – In September 2014, we entered into an exclusive option agreement with Memorial Sloan Kettering Cancer Center (“MSK”) under which we have the right to acquire the exclusive worldwide license rights to the three clinical stage T-cell therapies of MSK.  The initial option period is for twelve months, with extensions available to extend the term up to 27 months at the option of Atara.  Under the terms of the option agreement, we are obligated to use reasonable efforts to prepare a request to be submitted to the US Food and Drug Administration (the “FDA”) regarding a meeting to discuss pivotal trials for one of the clinical stage T-cell therapies.  In exchange for the exclusive option, we paid MSK $1.25 million in cash and issued 59,761 shares of our common stock to MSK.  At the time of issuance, we estimated the fair value of the common stock issued to MSK to be $750,000.  This total of $2.0 million was recorded as research and development expense in our condensed consolidated and combined statement of operations and comprehensive loss in the third quarter of 2014.  We will be obligated to pay MSK an additional amount up to $630,000 if we extend the option period.

If we exercise the option and enter into the license agreement with MSK, we will be obligated under the license agreement to pay to MSK an upfront cash payment of $4.5 million and additional payments of up to $33.0 million based on a license fee and achievement of specified development, regulatory and sales-related milestones, and to make mid-single-digit percentage royalty payments based on sales of the T-cell therapy products.

 

5.

Commitments and Contingencies

Operating Leases

Rent expense for the three months ended March 31, 2015 and 2014 was $81,220 and $14,640, respectively.

Related Party License Agreements

Under the terms of our license agreements with Amgen, we are obligated to make additional milestone payments to Amgen of up to $86.0 million upon the achievement of certain development and regulatory approval milestones. Of these milestone payments, $14.0 million relate to milestones for clinical trials. The remaining $72.0 million relate to milestones for regulatory approvals in various territories and are anticipated to be made no earlier than 2017. Thereafter, we are obligated to make tiered payments based on achievement of commercial milestones based upon net sales levels. The maximum payments would be $206.0 million based on sales of over $1 billion for each of three products in a calendar year. We are also obligated to pay mid-single-digit percentage tiered royalties on future net sales of products which are developed and approved as defined by the agreements. 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. As of March 31, 2015 and December 31, 2014, there were no outstanding obligations due to Amgen.

In accordance with terms of the agreements, we use commercially reasonable efforts to pay costs related to the preparation, filing, prosecution, defense and maintenance of the patents covered by the license agreements. During the three months ended March 31, 2015 and 2014, we incurred expenses of $508,919 and $218,072, respectively, related to the preparation, filing and maintenance of patents.

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 have not recorded any liabilities for these agreements as of March 31, 2015 and December 31, 2014.

10


 

 

 

6.

Stockholders’ Equity

 

Restricted Common Stock

In August 2012, in connection with our formation, our CEO purchased 9,595,384 shares of restricted common stock at a nominal per share purchase price. The shares were issued subject to certain vesting conditions, restrictions on transfer and a Company right of repurchase of any unvested share at their original purchase price. These shares are placed in escrow until vested, and have rights to vote and participate in dividends and distributions. The combined grant date intrinsic value for this award was $1,704,094 and 7,996,153 of these shares had service and fundraising vesting conditions. Under the service vesting condition, shares vest monthly over 48 months, commencing from the first closing of Series A convertible preferred stock financing on October 22, 2012. 1,599,231 of these shares are subject to performance milestones and fundraising vesting conditions. The fundraising vesting conditions for all shares were satisfied as of December 31, 2013. All shares subject to service vesting conditions are subject to accelerated vesting in the event of certain change of control transactions.

In March 2013, an Atara employee purchased 2,423,074 shares of restricted common stock for $331,170. The shares were issued under our 2012 Equity Incentive Plan (as discussed below) and are subject to certain vesting conditions, restrictions on transfer and a Company right of repurchase of any unvested shares at their original purchase price. These shares are placed in escrow until vested, and have rights to vote and participate in dividends and distributions. Under these agreements, the shares vest as follows: 2,319,228 shares vest over four years, with one-quarter vesting after one year of service and the remainder vesting in equal installments over the subsequent thirty-six months, and 103,846 shares vest upon achievement of certain performance milestones. Vesting of all shares is subject to acceleration of vesting in the event of certain change of control transactions.

The restricted common stock was purchased with secured promissory notes totaling $331,170.

The amounts paid for both restricted stock purchases were initially recorded as other long-term liabilities. As shares vest, we reclassify liabilities to equity and report shares as outstanding in the condensed consolidated and combined financial statements. On March 31, 2014, the shares were exchanged for 1,335,384 shares of Atara common stock.  At March 31, 2015, 887,067 shares had vested and are classified as equity. Restricted stock shares not vested at March 31, 2015 totaled 448,317 shares and are expected to vest over two years.

As both the Chief Executive Officer and the Atara employee were consultants of Nina, Pinta and Santa Maria through the Recapitalization date, we accounted for these awards as non-employee stock-based awards. Following the Recapitalization, these awards were accounted as employee awards based upon the fair market value of common stock on March 31, 2014. Stock-based compensation expense related to these awards is recorded using an accelerated graded vesting model and was $323,226 and $3.3 million for the three months ended March 31, 2015 and 2014, respectively.  The unrecognized stock-based compensation expense related to this unvested restricted stock was $860,566 at March 31, 2015 and this expense is expected to be recognized over the remaining service periods through 2016.  The aggregate intrinsic value of unvested restricted stock is $18.6 million at March 31, 2015.

2014 Equity Incentive Plans

In March 2014, we adopted the 2014 Equity Incentive Plan (the “2014 plan”) as part of our Recapitalization. In connection with the Recapitalization, Atara assumed the plans of Nina, Pinta and Santa Maria and all outstanding restricted stock units (“RSUs”) and restricted stock awards granted under such plans.  At the date of Recapitalization, RSUs and restricted stock awards issued by Nina, Pinta and Santa Maria to Atara employees became employee awards and the awards’ grant dates were established as the Recapitalization date.  In May 2014, our board of directors amended and restated our 2014 plan and the amended plan became effective on October 15, 2014 upon the pricing of our initial public offering.  The maximum number of shares of our common stock that may be issued pursuant to stock awards under the 2014 plan is 4,536,797 shares, including 1,294,041 shares that were previously available for issuance under the 2012 plans.

The number of shares of our common stock reserved for issuance pursuant to stock awards under our 2014 plan will automatically increase on January 1 of each year for a period of up to ten years, beginning on January 1, 2015 and ending on and including January 1, 2024, by 5% of the number of shares of our capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares determined by our board of directors.  The number of shares of our common stock available for issuance under the 2014 plan is 2,046,541 at March 31, 2015.

11


 

Under the terms of the 2014 plan, we may grant options, restricted stock awards and RSUs to employees, directors, consultants and other service providers. Employees typically receive an award upon commencement of employment and members of our board of directors receive an award in connection with their appointment. Generally, if any shares subject to an award expire, or are forfeited, terminated or cancelled without the issuance of shares, the shares are added back into the total shares available for issuance under the 2014 plan.

RSUs typically expire at the earlier of seven years from the date of grant or the service termination (or, for RSUs granted prior to February 2014, two years following the service termination date). Stock options are granted at prices no less than 100% of the estimated fair value of the shares on the date of grant as determined by the board of directors, provided, however, that the exercise price of an option granted to a 10% shareholder cannot be less than 110% of the estimated fair value of the shares on the date of grant. Options granted to employees and non-employees generally vest over four years and expire in seven years.

Restricted Stock Units and Awards

The RSUs granted prior to our initial public offering had a time-based service condition and a liquidity-based performance condition, and vest when both conditions are met. We determined that the liquidity-based performance condition was not probable of occurring and recorded no stock-based compensation expense related to the RSUs prior to our initial public offering.  Upon the closing of our initial public offering in October 2014, we recorded $3.8 million of stock-based compensation expense in our consolidated and combined statement of operations for the quarter ended December 31, 2014.  The remaining unrecognized stock-based compensation expense relating to nonvested RSUs will be recognized as the RSUs vest over the remaining service periods through 2018. As of March 31, 2015, there was $3.9 million of unrecognized stock-based compensation expense related to RSUs that is expected to be recognized over a weighted average period of 1.42 years. The aggregate intrinsic value of the RSUs outstanding at March 31, 2015 was $37.7 million.

The following is a summary of RSU activity, including the restricted stock award discussed above, under our 2014 plan:

 

 

 

Restricted Stock Awards

 

 

RSUs

 

 

 

Shares

 

 

Weighted Average Grant Date Fair Value

 

 

Shares

 

 

Weighted Average Grant Date Fair Value

 

Unvested at December 31, 2014

 

 

112,740

 

 

$

0.40

 

 

 

619,303

 

 

$

4.64

 

Granted

 

 

 

 

 

 

 

 

87,600

 

 

$

25.15

 

Forfeited

 

 

 

 

 

 

 

 

 

 

 

 

Vested

 

 

(16,106

)

 

$

0.40

 

 

 

(113,713

)

 

$

5.66

 

Unvested at March 31, 2015

 

 

96,634

 

 

$

0.40

 

 

 

593,190

 

 

$

7.47

 

 

Stock Options

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

 

 

Number of shares

 

 

Weighted Average Exercise Price

 

 

Weighted Average Remaining Contractual Term

 

Aggregate Intrinsic Value

 

Outstanding at December 31, 2014

 

 

623,936

 

 

$

13.69

 

 

 

 

 

 

 

Granted (weighted-average grant date fair value of $14.07 per share)

 

 

690,699

 

 

$

24.96

 

 

 

 

 

 

 

Balance at March 31, 2015

 

 

1,314,635

 

 

$

19.61

 

 

6.67

 

$

28,866,786

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock options vested and expected to vest at March 31, 2015

 

 

1,314,635

 

 

$

19.61

 

 

6.67

 

$

28,866,786

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at March 31, 2015

 

 

56,175

 

 

$

16.10

 

 

6.63

 

$

1,430,908

 

12


 

 

Aggregate intrinsic value represents the difference between the closing stock price of our common stock on March 31, 2015 and the exercise price of outstanding, in-the-money options. As of March 31, 2015, there was $13.6 million of unrecognized stock-based compensation expense related to stock options that is expected to be recognized over a weighted average period of 3.43 years. No options were exercised in the first quarter of 2015.  

The fair value of each option issued during 2015 was estimated at the date of grant using the Black-Scholes valuation model with the following weighted-average assumptions:

 

 

Three Months Ended March 31, 2015

 

 

 

Employees

 

 

Non-Employees

 

 

 

 

 

 

 

 

 

 

Risk-free interest rate

 

1.3% - 1.6%

 

 

1.6%

 

Expected life of options in years

 

4.5

 

 

6.9

 

Expected volatility of underlying stock

 

 

71.1%

 

 

 

70.1%

 

Expected dividend yield

 

 

0.0%

 

 

 

0.0%

 

 

Stock-based Compensation Expense

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

 

 

Three months

 

 

ended March 31,

 

 

2015

 

 

2014

 

Research and development

$

1,288

 

 

$

705

 

General and administrative

 

1,195

 

 

 

2,612

 

 

$

2,483

 

 

$

3,317

 

 

 

 

13


 

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 audited consolidated and combined financial statements and related notes included  in our 2014 Annual Report on Form 10-K. 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 novel therapeutics for serious unmet medical needs, with an initial focus on muscle wasting conditions and oncology. Our product candidates are biologics targeting myostatin and activin, members of the TGF-ß protein superfamily, which play roles in the growth and maintenance of muscle and many other body tissues. Our lead product candidate, PINTA 745, is in a Phase 2 clinical trial for protein energy wasting in ESRD patients. Our second product candidate is STM 434. We commenced a Phase 1 clinical study of STM 434 for ovarian cancer and other solid tumors in 2014. We have five additional product candidates targeting the TGF-ß pathway in preclinical development, including ATA 842. In addition, we have an exclusive option to license certain T-cell programs from MSK. We intend to license or acquire additional product candidates to develop and commercialize.

Our current product candidate portfolio was acquired through licensing arrangements with Amgen in exchange for convertible preferred stock and future milestone payments and royalties. Through these arrangements, we obtained licenses to patent rights and the ability to use certain proprietary know-how to develop and commercialize a portfolio of seven product candidates.  We are responsible for obtaining all regulatory approvals and developing commercial scale manufacturing processes to enable eventual commercialization of these product candidates. Under the terms of these agreements, we made an upfront payment of $250,000 and issued 615,384 shares of Series A-1 convertible preferred stock on a combined basis to Amgen. We are also required to make additional payments of up to $86.0 million to Amgen based upon the achievement of certain development and regulatory approval milestones, as well as additional payments based on achievement of commercial milestones and future net sales of products resulting from development of these product candidates, if any. Of the $86.0 million, $14.0 million in potential payments relate to milestones for clinical trials.

We have only 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 and clinical studies and providing general and administrative support for these operations.

We have never generated revenues and have incurred net losses since inception. Our net loss was $9.2 million for the three months ending March 31, 2015 and as of March 31, 2015, we had an accumulated deficit of $50.0 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. Our cash and cash equivalents and short-term investment balances at March 31, 2015 totaled $166.7 million, which we intend to use to fund our operations.

Financial Overview

Basis of Presentation and Recapitalization

Atara was formed as a management company with the sole purpose of providing management, financial and administrative services for Nina, Pinta and Santa Maria. Since inception, Atara, Nina, Pinta and Santa Maria have been under common management and common ownership for all periods and as of all dates prior to our recapitalization on March 31, 2014, we have presented the results of operations and financial condition of the four companies on a combined basis. The combined financial statements include the accounts of the four individual companies since inception, with intercompany transactions eliminated.

14


 

On March 31, 2014, we implemented a recapitalization in which (a) all the outstanding shares of common stock of Atara were cancelled and forfeited by existing stockholders and (b) the stockholders of Nina, Pinta and Santa Maria exchanged their existing common and convertible preferred stock for newly-issued shares of Atara, in the same proportions and with the same rights and privileges as the outstanding capital stock of Nina, Pinta and Santa Maria, on a collective nine-for-one basis. Atara assumed the separate equity incentive plans sponsored by Nina, Pinta and Santa Maria and all outstanding RSUs and restricted stock awards granted under such plans. At the time of RSU settlement, each employee or consultant will receive one share of common stock of Atara for three RSUs in each of Nina, Pinta, and Santa Maria (collectively, a nine-for-one exchange). We refer to this transaction as our recapitalization. As a result of the recapitalization, Nina, Pinta and Santa Maria became wholly owned subsidiaries of Atara effective March 31, 2014. The recapitalization was accounted for as a combination of businesses under common control and the assets and liabilities of Nina, Pinta and Santa Maria were recorded by Atara at their historical carrying amounts on March 31, 2014. Beginning March 31, 2014, our financial statements are presented on a consolidated basis, with all intercompany transactions eliminated. Except as otherwise noted, all share and per share amounts presented in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” give effect to the recapitalization.

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 of costs incurred in performing research and development activities, including compensation and benefits for research and development employees, including stock-based compensation, an allocation of facility and overhead expenses, 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 and costs associated with product development efforts, preclinical activities and regulatory operations. Research and development costs are expensed as incurred.

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

·

increase enrollment and completion of our Phase 2 clinical trial of PINTA 745;

·

increase enrollment and completion of our Phase 1 clinical study of STM 434;

·

process development and manufacturing of drug supply for PINTA 745, STM 434 and ATA 842 to support clinical trials and IND-enabling studies; and

·

evaluate our exclusive option to license certain T-cell programs from MSK.

In addition to our product candidates that are in clinical and preclinical development, we believe it is important to continue our substantial investment in a diverse pipeline 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 studies 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 drop-out 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.

15


 

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 completion costs of 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 personnel costs, allocated facilities costs and other expenses for outside professional services, including legal, human resources, audit and accounting services. Personnel costs consist of salaries, benefits and stock-based compensation. 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

Interest and other income consists primarily of interest earned on our cash, cash equivalents and marketable securities as well as interest on notes receivable issued to one of our employees related to the purchase of restricted common stock.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of financial condition and results of operations are based upon our unaudited condensed consolidated and combined financial statements, which have been prepared in accordance with GAAP. The preparation of these condensed consolidated and combined financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, and expenses. On an on-going basis, we evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions. Our significant accounting policies are more fully described in Note 2 of the accompanying unaudited condensed consolidated and combined financial statements and in Note 2  to our audited consolidated and combined financial statements included in our Annual Report on Form 10-K.

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.

16


 

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 Exchange Act.

Results of Operations

Comparison of the Three Months Ended March 31, 2015 and 2014

Research and development expenses

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

 

 

Three months

 

 

 

 

 

 

ended March 31,

 

 

Increase

 

 

2015

 

 

2014

 

 

(Decrease)

 

 

(in thousands)

 

 

 

 

 

PINTA 745

$

1,477

 

 

$

525

 

 

$

952

 

STM 434

 

664

 

 

 

1,317

 

 

 

(653

)

ATA 842

 

982

 

 

 

12

 

 

 

970

 

T-cell therapy programs

 

122

 

 

 

 

 

 

122

 

Employee and overhead cost

 

2,522

 

 

 

1,127

 

 

 

1,395

 

Total research and development expense

$

5,767

 

 

$

2,981

 

 

$

2,786

 

PINTA 745 costs increased by $1.0 million in 2015 compared to 2014 due to increased clinical development and production costs to support our Phase 2 clinical trial that commenced during the fourth quarter of 2013.  We anticipate that PINTA 745 costs will continue to increase in 2015 as we incur additional costs to manufacture future clinical drug supply to support our ongoing Phase 2 clinical trial.

STM 434 program costs decreased by $0.7 million in 2015 as compared to the prior period due to higher outside production costs incurred in 2014 to manufacture clinical drug supply for our Phase 1 clinical study that commenced in the second half of 2014.  We anticipate that STM 434 costs will continue to increase in 2015 due to the timing of manufacturing costs associated with the production of additional clinical drug supply and expansion of our ongoing clinical trial.

ATA 842 program costs increased by $1.0 million in 2015 as compared to 2014 primarily due to preclinical research and production activities.

T-cell therapy program costs increased by $0.1 million in 2015 as compared to 2014 primarily due to consulting fees relating to the T-cell programs.

Employee and overhead costs increased by $1.4 million in 2015 as compared to 2014 primarily as a result of increased payroll-related costs from increased headcount and stock-based compensation.

General and administrative expenses

 

 

Three months

 

 

 

 

 

 

ended March 31,

 

 

Increase

 

 

2015

 

 

2014

 

 

(Decrease)

 

 

(in thousands)

 

 

 

 

 

General and administrative expense

$

3,544

 

 

$

4,096

 

 

$

(552

)

 

17


 

General and administrative expenses decreased in 2015 compared to 2014 primarily due to a $1.4 million decrease in stock-based compensation costs.  Stock-based compensation expense was higher in 2014 versus 2015 due to our use of accelerated graded vesting for compensation expense associated with restricted stock award.  This decrease was partially offset by higher payroll-related costs from increased headcount and higher administrative costs, director and officer insurance premiums and investor relations costs associated with being a public company.

Liquidity and Capital Resources

We have incurred cumulative losses and negative cash flows from operations since our inception in 2012, and we have an accumulated deficit of $50.0 million as of March 31, 2015. It will be several years, if ever, before we have a product candidate ready for commercialization, and we anticipate that we will continue to incur losses for at least the next several years. We expect that our research and development and general and administrative expenses will continue to increase and, as a result, we will need additional capital to fund our operations, which we may raise through a combination of equity offerings, debt financings, other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements.

Cash in excess of immediate requirements is invested in accordance with our investment policy, primarily with a view to liquidity and capital preservation. Currently, our cash and cash equivalents and short-term investments are held in bank and custodial accounts and consist of money market mutual funds, corporate bonds and commercial paper.  Management expects that existing cash and cash equivalents as of March 31, 2015 will be sufficient to fund our current operating plan for at least the next twelve months.

 

Beginning May 15, 2015 and quarterly thereafter, vested restricted stock units will settle and payroll taxes calculated on the fair value of these awards will be owed.  We may collect the tax liability by withholding a pro-rata amount of shares equivalent to the employee’s tax rate.  In that event, we would pay the employees’ tax liability, which may be greater than $10 million in 2015, depending up the stock price on the settlement date.  We expect the amounts in 2016 and beyond to decrease, as the number of vested and settled RSUs decreases.

Working capital was $166.2 million as of March 31, 2015 and included in working capital were cash, cash equivalents, and short-term investments of $166.7 million.

Our cash, cash equivalents and short-term investments balances were as follows:

 

Our cash, 

 

 

 

March 31, 2015

 

  

December 31, 2014

 

 

                                       (in thousands)

 

 

Cash and cash equivalents

 

 

 

  

$

71,329

  

  

$

21,897

  

Short-term available-for-sale investments

 

 

  

  

 

95,367

  

  

 

82,219

  

Total cash and cash equivalents and short-term available-for-sale investments

 

 

 

  

$

166,696

  

  

$

104,116

  

Cash Flows

Comparison of the Three Months Ended March 31, 2015 and 2014

The following table details the primary sources and uses of cash for each of the periods set forth below:

 

 

Three months
ended March 31,

 

 

2015

 

 

2014

 

 

(in thousands)

 

Net cash provided by (used in):

 

 

 

 

 

 

 

Operating activities

$

(6,622

 

$

(2,917

Investing activities

 

(13,433

 

 

(22,415

Financing activities

 

69,487

  

 

 

13,471

  

Net increase (decrease) in cash and cash equivalents

$

49,432

  

 

$

(11,861

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Operating activities

For the three months ended March 31, 2015 and 2014, we used $6.6 million and $2.9 million, respectively, of net cash in operating activities. The $3.7 million increase in cash used in operating activities was primarily due to the $2.0 million increase in net loss between 2014 and 2015 and the $0.8 million decrease in stock-based compensation.  In addition, cash used to fund changes in operating assets and liabilities increased by $1.1 million between periods.

Investing activities

Net cash used in investing activities during the three months ended March 31, 2015 consisted primarily of $54.8 million invested in short-term available-for-sale securities, offset by maturities of $41.4 million.  Net cash used in investing activities during the three months ended March 31, 2014 consisted primarily of $22.4 million invested in short-term available-for-sale securities.

Financing activities

Net cash provided by financing activities for the three months ended March 31, 2015 was $69.5 million, consisting of proceeds from the sale of common stock, net of offering costs.  Net cash provided by financing activities for the three months ended March 31, 2015 was $13.5 million, consisting primarily of the proceeds from the sale of shares of Series B convertible preferred stock, net of offering costs.

Operating Capital Requirements and Plan of Operations

To date, we have not generated any revenue from product sales. We do not know when, or if, we will generate any revenue from product sales. We do not expect to generate significant revenue from product sales unless and until we obtain regulatory approval of and commercialize one of our current or future product candidates. We anticipate that we will continue to generate losses for the foreseeable future, and we expect the losses to increase as we continue the development of and seek regulatory approvals for our product candidates, and begin to commercialize any approved products. We are subject to all of the risks inherent in the development of new products, and we may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. We have incurred and expect to continue to incur additional costs associated with operating as a public company and we anticipate that we will need substantial additional funding in connection with our continuing operations.

We expect that our existing cash and cash equivalents will be sufficient to enable us to complete planned preclinical and clinical trials for our lead product candidates into mid-2018. In order to complete the process of obtaining regulatory approval for our lead product candidates and to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our lead product candidates, if approved, we will require substantial additional funding.

We have based our projections of operating capital requirements on assumptions that may prove to be incorrect and we may use all of our available capital resources sooner than we expect. Because of the numerous risks and uncertainties associated with research, development and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:

the timing and costs of our planned clinical trials for our product candidates;

the timing and costs of our planned preclinical studies of our product candidates;

our success in establishing and scaling commercial manufacturing capabilities;

the number and characteristics of product candidates that we pursue;

the outcome, timing and costs of seeking regulatory approvals;

subject to receipt of regulatory approval, revenues received from commercial sales of our product candidates;

the terms and timing of any future collaborations, licensing, consulting or other arrangements that we may establish;

the amount and timing of any payments we may be required to make in connection with the licensing, filing, prosecution, maintenance, defense and enforcement of any patents or patent applications or other intellectual property rights; and

the extent to which we in-license or acquire other products and technologies.

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Contractual Obligations and Commitments and Off-Balance Sheet Arrangements

Contractual Obligations and Commitments

During the three months ended March 31, 2015, there were no material changes to our contractual obligations reported in our Annual Report on Form 10-K for the year ended December 31, 2014.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

 

Item 3.

Quantitative and Qualitative Disclosure about Market Risk

We are exposed to market risk related to changes in interest rates. As of March 31, 2015, we had cash and cash equivalents and short-term available-for-sale investments of $166.7 million. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general level of US interest rates, particularly because our investments are in short-term securities. Our available-for-sale securities are subject to interest rate risk and will fall in value if market interest rates increase. Due to the short-term duration of our investment portfolio and the low risk profile of our investments, an immediate 10% increase in interest rates would not have a material effect on the fair market value of our portfolio.

 

Item 4.

Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision of our Chief Executive Officer and Chief Financial Officer, we evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) of the Exchange Act as of March 31, 2015.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2015 to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely discussion regarding required disclosure.

 

Changes in Internal Control Over Financial Reporting

 

There have been no changes in our internal controls over financial reporting during the three months ended March 31, 2015 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

 

Inherent Limitations on Effectiveness of Controls

 

Our management, including our Chief Executive Officer and our Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, our management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by the collusion of two or more people or by

20


 

management override of controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

PART II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

We are not currently party to any material litigation or other material legal proceedings.

 

 

21


 

Item 1A.

Risk Factors

 

Risk factors

You should carefully consider all of the risk factors and uncertainties described below, in addition to other information contained in this Quarterly Report Form 10-Q, including the section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated and combined financial statements and related notes, before investing in our common stock.  If any of the following risks materialize, our business, financial condition and results of operations could be seriously harmed.  In these circumstances, the market price of our common stock could decline, and you may lose all or a part of your investment.

Risks Related to Our Financial Results and Capital Needs

We have incurred substantial losses since our inception and anticipate that we will continue to incur substantial and increasing losses for the foreseeable future.

We are a clinical-stage biopharmaceutical company. Investment in biopharmaceutical product development is highly speculative because it entails substantial upfront capital expenditures and significant risk that a product candidate will fail to prove effective, gain regulatory approval or become commercially viable. We do not have any products approved by regulatory authorities and have not generated any revenues from product sales to date, and have incurred significant research, development and other expenses related to our ongoing operations and expect to continue to incur such expenses. As a result, we have not been profitable and have incurred significant operating losses in every reporting period since our inception. For the three months ended March 31, 2015 and the year ended December 31, 2014, we reported a net loss of $9.2 million and $28.0 million, respectively, and we had an accumulated deficit of $50.0 million at March 31, 2015.

We do not expect to generate revenues for many years, if at all. We expect to continue to incur significant expenses and operating losses for the foreseeable future. We anticipate these losses to increase as we continue to research, develop and seek regulatory approvals for our product candidates and any additional product candidates we may acquire, and potentially begin to commercialize product candidates that may achieve regulatory approval. We may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenues. If any of our product candidates fail in clinical trials or do not gain regulatory approval, or if approved, fail to achieve market acceptance, we may never become profitable. Even if we achieve profitability in the future, we may not be able to sustain profitability in subsequent periods. We anticipate that our expenses will increase in the future as we continue to invest in research and development of our existing product candidates, investigate and potentially acquire new product candidates and expand our manufacturing and commercialization activities.

We have a limited operating history, which may make it difficult for you to evaluate the success of our business to date and to assess our future viability.

Our company was formed in August 2012. Our operations to date have been limited to organizing and staffing our company, acquiring product and technology rights and conducting product development activities for our product candidates. We have not yet demonstrated our ability to successfully complete any Phase 2 or Phase 3 clinical trials, obtain regulatory approval, manufacture a commercial scale product or arrange for a third party to do so on our behalf, or conduct sales and marketing activities necessary for successful commercialization for any of our product candidates. Consequently, any predictions about our future success, performance or viability may not be as accurate as they could be if we had a longer operating history or approved products on the market.

In addition, as a young business, we may encounter unforeseen expenses, difficulties, complications, delays and other known and unknown factors. We will need to transition at some point from a company with a research and development focus to a company capable of supporting commercial activities. We may not be successful in such a transition. We expect our financial condition and operating results to continue to fluctuate significantly from quarter to quarter and year to year due to a variety of factors, many of which are beyond our control. Accordingly, you should not rely upon the results of any quarterly or annual periods as indications of future operating performance.

22


 

We currently have no source of revenues. We may never generate revenues or achieve profitability.

To date, we have not generated any revenues from product sales or otherwise. Our ability to generate revenues from product sales and achieve profitability will depend on our ability to commercialize products, including any of our current product candidates, and other product candidates that we may develop, in-license or acquire in the future. Even if we are able to successfully achieve regulatory approval for these product candidates, we do not know when we will generate revenues, if at all. Our ability to generate revenues also depends on a number of additional factors, including our ability to:

·

successfully complete development activities, including the necessary clinical trials;

·

complete and submit BLAs to the FDA and obtain US regulatory approval for indications for which there is a commercial market;

·

complete and submit applications to, and obtain regulatory approval from, foreign regulatory authorities in Europe, Asia and other jurisdictions;

·

obtain coverage and adequate reimbursement from third parties, including government and private payors;

·

set a commercially viable price for our products;

·

establish and maintain supply and manufacturing relationships with reliable third parties and ensure adequate, legally compliant manufacturing of bulk drug substances and drug products to maintain that supply;

·

obtain commercial quantities of our products at acceptable cost levels;

·

achieve market acceptance of our products, if any;

·

attract, hire and retain qualified personnel;

·

protect our rights in our intellectual property portfolio;

·

develop a commercial organization capable of sales, marketing and distribution for any products we intend to sell ourselves in the markets in which we choose to commercialize on our own; and

·

find suitable distribution partners to help us market, sell and distribute our approved products in other markets.

In addition, because of the numerous risks and uncertainties associated with product development, including that our product candidates may not advance through development or achieve the endpoints of applicable clinical trials, we are unable to predict the timing or amount of increased expenses, or when or if we will be able to achieve or maintain profitability. Even if we are able to complete the development and regulatory process for any product candidates, we anticipate incurring significant costs to commercialize these products.

Even if we are able to generate revenues from the sale of our products, we may not become profitable and may need to obtain additional funding to continue operations. If we fail to become profitable or are unable to sustain profitability on a continuing basis, then we may be unable to continue our operations at planned levels and may be forced to reduce our operations.

We will require substantial additional financing to achieve our goals, and a failure to obtain this necessary capital when needed could force us to delay, limit, reduce or terminate our product development or commercialization efforts.

We expect to expend substantial resources for the foreseeable future continuing the clinical development and manufacturing of PINTA 745, the clinical development and manufacturing of STM 434 and the advancement and expansion of our preclinical research pipeline, including ATA 842 and any T-cell programs we may choose to license from MSK. These expenditures will include costs associated with research and development, potentially acquiring new product candidates, evaluating and potentially exercising our option to license certain T-cell programs from MSK, conducting preclinical studies and clinical trials and potentially obtaining regulatory approvals and manufacturing products, as well as marketing and selling products approved for sale, if any. Under the terms of our license agreements with Amgen, we are obligated to make additional milestone payments to Amgen of up to $86.0 million upon the achievement of certain development and regulatory approval milestones. In addition, other unanticipated costs may arise. Because the design and outcome of our planned and anticipated clinical trials is highly uncertain, we cannot reasonably estimate the actual amounts necessary to successfully complete the development and commercialization of our product candidates.

23


 

Our future capital requirements depend on many factors, including:

·

the scope, progress, results and costs of researching and developing our other product candidates, and conducting preclinical studies and clinical trials;

·

the timing of, and the costs involved in, obtaining regulatory approvals for our other product candidates if clinical trials are successful;

·

the cost of commercialization activities for our product candidates, if any of these product candidates is approved for sale, including marketing, sales and distribution costs;

·

the cost of manufacturing our product candidates for clinical trials in preparation for regulatory approval and in preparation for commercialization;

·

our ability to establish and maintain strategic licensing or other arrangements and the financial terms of such agreements;

·

the costs to in-license future product candidates or technologies, including the exercise of our option to license certain T-cell programs from MSK;

·

the costs involved in preparing, filing, prosecuting, maintaining, expanding, defending and enforcing patent claims, including litigation costs and the outcome of such litigation;

·

the timing, receipt and amount of sales of, or royalties on, our future products, if any; and

·

the emergence of competing technologies or other adverse market developments.

Based on our current operating plan, our existing cash and cash equivalents and short-term investments, will be sufficient to fund our projected operating requirements into mid-2018. As of March 31, 2015, we had cash and cash equivalents and short-term investments of $166.7 million.  However, our operating plan may change as a result of many factors currently unknown to us, and we may need additional funds sooner than planned. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans. We do not have any committed external source of funds. Additional funds may not be available when we need them on terms that are acceptable to us, or at all. If adequate funds are not available to us on a timely basis, we may be required to delay, limit, reduce or terminate preclinical studies, clinical trials or other development activities for one or more of our product candidates or delay, limit, reduce or terminate our establishment of sales and marketing capabilities or other activities that may be necessary to commercialize our product candidates.

Raising additional capital may cause dilution to our existing stockholders, restrict our operations or require us to relinquish rights to our product candidates on unfavorable terms to us.

We may seek additional capital through a variety of means, including through private and public equity offerings and debt financings. To the extent that we raise additional capital through the sale of equity or convertible debt securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. Debt financing, if available, may involve agreements that include covenants limiting or restricting our ability to take certain actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds from third parties, we may have to relinquish valuable rights to our technologies or product candidates, or grant licenses on terms that are not favorable to us. If we are unable to raise additional funds through equity or debt financing when needed, we may be required to delay, limit, reduce or terminate our product development or commercialization efforts for our product candidates, or grant to others the rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

24


 

Our ability to use our net operating loss carryforwards and certain other tax attributes may be limited.

We have incurred substantial losses during our history and do not expect to become profitable in the near future and we may never achieve profitability. To the extent that we continue to generate taxable losses, unused losses will carry forward to offset future taxable income, if any, until such unused losses expire. At December 31, 2014, we had federal and state net operating loss carryforwards of approximately $20.6 million, which, if not utilized, begin to expire in various amounts beginning in the year 2032. Under Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”), if over a rolling three-year period, the cumulative change in our ownership exceeds 50% (as determined under applicable Treasury regulations), our ability to utilize our US federal net operating loss (“NOL”) carryforwards and other pre-change tax attributes (such as research tax credits) to offset future taxable income or taxes may be limited. We have experienced at least one ownership change since inception and our utilization of NOL carryforwards will therefore be subject to annual limitation. Our ability to utilize our NOL carryforwards may be further limited as a result of subsequent ownership changes.  Similar rules may apply under state tax laws. Further, other provisions of the Code may limit our ability to utilize NOLs incurred before the recapitalization to offset income or gain realized after the recapitalization, unless such income or gain is realized by the same entity that originally incurred such NOLs. In addition, at the state level, there may be periods during which the use of NOLs is suspended or otherwise limited. Such limitations could result in the expiration of our carryforwards before they can be utilized and, if we are profitable, our future cash flows could be adversely affected due to our increased tax liability.

Risks Related to the Development of Our Product Candidates

We are very early in our development efforts and have only two product candidates in clinical development. All of our other product candidates are still in preclinical development. If we or our collaborators are unable to successfully develop and commercialize product candidates or experience significant delays in doing so, our business will be materially harmed.

We are very early in our development efforts and have only two product candidates, PINTA 745 and STM 434, in clinical development. All of our other product candidates are currently in preclinical development. We have invested substantially all of our efforts and financial resources in identifying and developing potential product candidates and conducting preclinical studies, clinical trials and manufacturing activities. Our ability to generate revenues, which we do not expect will occur for many years, if ever, will depend heavily on the successful development and eventual commercialization of our product candidates. The success of our product candidates will depend on several factors, including the following:

·

completion of preclinical studies and clinical trials with positive results;

·

receipt of regulatory approvals from applicable authorities;

·

obtaining and maintaining patent and trade secret protection and regulatory exclusivity for our product candidates;

·

making arrangements with third-party manufacturers for, or establishing, commercial manufacturing capabilities;

·

manufacturing products at an acceptable cost;

·

launching commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others;

·

acceptance of the product candidates, if and when approved, by patients, the medical community and third-party payors;

·

effectively competing with other therapies;

·

obtaining and maintaining coverage and adequate reimbursement by third-party payors, including government payors, for our product candidates;

·

protecting our rights in our intellectual property portfolio;

·

maintaining a continued acceptable safety profile of the products following approval; and

·

maintaining and growing an organization of scientists and business people who can develop and commercialize our products and technology.

25


 

If we do not achieve one or more of these factors in a timely manner or at all, we could experience significant delays or an inability to successfully develop and commercialize our product candidates, which would materially harm our business.

Our future success is dependent on the regulatory approval of our two lead product candidates.

We do not have any products that have gained regulatory approval. Currently, our only licensed clinical-stage product candidates are PINTA 745, which is in a Phase 2 clinical trial, and STM 434, for which we commenced a Phase 1 study in 2014. Our business is substantially dependent on our ability to obtain regulatory approval for, and, if approved, to successfully commercialize our product candidates in a timely manner. We cannot commercialize product candidates in the United States without first obtaining regulatory approval for the product from the FDA; similarly, we cannot commercialize product candidates outside of the United States without obtaining regulatory approval from comparable foreign regulatory authorities. Before obtaining regulatory approvals for the commercial sale of any product candidate for a target indication, we must demonstrate with substantial evidence gathered in preclinical and clinical studies, generally including two well-controlled Phase 3 trials, that the product candidate is safe and effective for use for that target indication and that the manufacturing facilities, processes and controls are adequate with respect to such product candidate.

The time required to obtain approval by the FDA and comparable foreign regulatory authorities is unpredictable but typically takes many years following the commencement of preclinical studies and clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during the course of a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate and it is possible that none of our existing product candidates or any future product candidates will ever obtain regulatory approval.

Our product candidates could fail to receive regulatory approval from the FDA or a comparable foreign regulatory authority for many reasons, including:

·

disagreement with the design or implementation of our clinical trials;

·

failure to demonstrate that a product candidate is safe and effective for its proposed indication; <