fprx-10q_20180331.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 31, 2018

or

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

For the transition period from                      to                      

Commission File Number: 001-36070

 

Five Prime Therapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

26-0038620

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

111 Oyster Point Boulevard

South San Francisco, California 94080

(415) 365-5600

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).   Yes      No  

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

 

 

 

 

Emerging growth company

 

  

  

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 

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

 


As of May 1, 2018, the number of outstanding shares of the registrant’s common stock was 35,209,289.

 

 

 

 

 


 

TABLE OF CONTENTS

 

PART I.

  

FINANCIAL INFORMATION

  

4

 

  

 

Item 1.

  

Financial Statements

  

4

 

  

 

  

 

Condensed Balance Sheets as of March 31, 2018 and December 31, 2017

  

4

 

  

 

  

 

Condensed Statements of Operations for the Three Months Ended March 31, 2018 and March 31, 2017

  

5

 

  

 

  

 

Condensed Statements of Comprehensive Loss for the Three Months Ended March 31, 2018 and March 31, 2017

  

6

 

  

 

  

 

Condensed Statements of Cash Flows for the Three Months Ended March 31, 2018 and March 31, 2017

  

7

 

  

 

  

 

Notes to Condensed Financial Statements

  

8

 

  

Item 2.

  

 

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

  

18

 

  

Item 3.

  

 

Quantitative and Qualitative Disclosures About Market Risk

  

27

 

  

Item 4.

  

 

Controls and Procedures

  

27

PART II.

  

 

OTHER INFORMATION

  

28

 

  

Item 1.

  

 

Legal Proceedings

  

28

 

  

Item 1A.

  

 

Risk Factors

  

28

 

  

Item 6.

  

 

Exhibits

  

56

 

Signatures

  

57

In this report, unless otherwise stated or the context otherwise indicates, references to “Five Prime,” “the company,” “we,” “us,” “our” and similar references refer to Five Prime Therapeutics, Inc. The Five Prime logo and RIPPS® are our registered trademarks. This report also contains registered marks, trademarks and trade names of other companies. All other trademarks, registered marks and trade names appearing in this report are the property of their respective holders.

 

 

 

2


 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA

This Quarterly Report on Form 10-Q contains forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “would,” “project,” “plan,” “expect,” or similar expressions, or the negative or plural of these words or expressions. These forward-looking statements include statements concerning the following:

 

our estimates regarding our expenses, revenues, anticipated capital requirements and our needs for additional financing;

 

our receipt of future milestone payments or royalties, and the timing of such payments;

 

our or our partners’ ability to timely advance drug candidates into and through clinical data readouts and successful completion of clinical trials;

 

the timing of the initiation, progress and results of preclinical studies and research and development programs;

 

our expectations regarding the potential safety, efficacy or clinical utility of our product candidates;

 

the implementation, timing and likelihood of success of our plans to develop companion diagnostics for our product candidates;

 

our ability to establish and maintain collaborations and necessary licenses;

 

the implementation of our business model and strategic plans for our business, product candidates and technology;

 

the scope of protection we establish and maintain for intellectual property rights covering our product candidates and technology;

 

the size of patient populations targeted by products we or our partners develop and market adoption of such products by physicians and patients;

 

the timing or likelihood of regulatory filings and approvals;

 

the ability to negotiate adequate reimbursement and pricing for our drug candidates by third parties and government authorities;

 

developments relating to our competitors and our industry; and

 

our expectations regarding licensing, acquisitions and strategic operations.

These statements are only current predictions and are subject to known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from those anticipated by the forward-looking statements. We discuss many of these risks in greater detail under the heading “Risk Factors” and elsewhere in this report. You should not rely upon forward-looking statements as predictions of future events.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we are under no duty to update or revise any of the forward-looking statements in this report, whether as a result of new information, future events or otherwise, after the date of this report.

We obtained the industry, market and competitive position data in this Quarterly Report on Form 10- from our own internal estimates and research as well as from industry and general publications and research surveys and studies conducted by third parties. While we believe that the information in each of these studies and publications is reliable, we have not independently verified market and industry data from third-party sources. While we believe our internal research is reliable and the market definitions we use are appropriate, neither such research nor such definitions have been verified by any independent source.

 

 

 

3


 

PART I. FINANCIAL INFORMATION

 

Item 1. Financial Statements

FIVE PRIME THERAPEUTICS, INC.

Condensed Balance Sheets

(In thousands, except per share amounts)

 

 

March 31,

 

 

December 31,

 

 

2018

 

 

2017

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

65,941

 

 

$

59,790

 

Marketable securities

 

323,485

 

 

 

232,900

 

Receivables from collaborative partners

 

4,269

 

 

 

13,133

 

Prepaid and other current assets

 

9,348

 

 

 

5,367

 

Total current assets

 

403,043

 

 

 

311,190

 

Restricted cash

 

1,543

 

 

 

1,543

 

Property and equipment, net

 

30,290

 

 

 

30,762

 

Other long-term assets

 

1,838

 

 

 

552

 

Total assets

$

436,714

 

 

$

344,047

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

1,831

 

 

$

2,237

 

Accrued personnel-related expenses

 

4,188

 

 

 

7,156

 

Other accrued liabilities

 

29,348

 

 

 

27,519

 

Deferred revenue, current portion

 

4,443

 

 

 

12,713

 

Deferred rent, current portion

 

1,356

 

 

 

1,356

 

Total current liabilities

 

41,166

 

 

 

50,981

 

Deferred revenue, long-term portion

 

14,816

 

 

 

10,223

 

Deferred rent, long-term portion

 

18,266

 

 

 

17,641

 

Other long-term liabilities

 

250

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Common stock, $0.001 par value; 100,000,000 shares authorized, 35,265,857

   issued and 34,334,645 outstanding at March 31, 2018. 28,982,056 issued and

   28,178,639 outstanding at December 31, 2017

 

34

 

 

 

28

 

Preferred stock, $0.001 par value, 10,000,000 shares authorized; no shares issued and

   outstanding

 

 

 

 

 

Additional paid-in capital

 

537,391

 

 

 

421,257

 

Accumulated other comprehensive loss

 

(586

)

 

 

(476

)

Accumulated deficit

 

(174,623

)

 

 

(155,607

)

Total stockholders' equity

 

362,216

 

 

 

265,202

 

Total liabilities and stockholders' equity

$

436,714

 

 

$

344,047

 

 

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

 

 

 

4


 

FIVE PRIME THERAPEUTICS, INC.

Condensed Statements of Operations

(In thousands, except per share amounts)

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2018

 

 

2017

 

 

Collaboration revenue

$

32,486

 

 

$

10,135

 

 

Operating expenses:

 

 

 

 

 

 

 

 

Research and development

 

43,552

 

 

 

33,760

 

 

General and administrative

 

10,478

 

 

 

10,486

 

 

Total operating expenses

 

54,030

 

 

 

44,246

 

 

Loss from operations

 

(21,544

)

 

 

(34,111

)

 

Interest and other income, net

 

1,159

 

 

 

668

 

 

Other loss, net

 

(5

)

 

 

 

 

Loss before income tax

 

(20,390

)

 

 

(33,443

)

 

Income tax (provision) benefit

 

 

 

 

 

 

Net loss

$

(20,390

)

 

$

(33,443

)

 

Basic and diluted net loss per common share

$

(0.63

)

 

$

(1.21

)

 

Weighted-average shares used to compute basic and diluted net loss

   per common share

 

32,314

 

 

 

27,657

 

 

 

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

 

 

 

5


 

FIVE PRIME THERAPEUTICS, INC.

Condensed Statements of Comprehensive Loss

(In thousands)

 

 

Three Months Ended

 

 

March 31,

 

 

2018

 

 

2017

 

Net loss

$

(20,390

)

 

$

(33,443

)

Other comprehensive loss:

 

 

 

 

 

 

 

Unrealized loss on marketable securities

 

(110

)

 

 

(205

)

Comprehensive loss

$

(20,500

)

 

$

(33,648

)

 

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

 

 

 

6


 

FIVE PRIME THERAPEUTICS, INC.

Condensed Statements of Cash Flows

(In thousands)

 

 

Three Months Ended

 

 

March 31,

 

 

2018

 

 

2017

 

Operating activities

 

 

 

 

 

 

 

Net loss

$

(20,390

)

 

$

(33,443

)

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

 

 

 

 

 

 

 

Depreciation and amortization

 

1,151

 

 

 

515

 

Stock-based compensation expense

 

7,820

 

 

 

9,887

 

Amortization of premiums and discounts on marketable securities

 

13

 

 

 

708

 

Loss on disposal of property and equipment

 

5

 

 

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Receivables from collaborative partners

 

8,864

 

 

 

(1,950

)

Income tax receivable

 

 

 

 

(7

)

Prepaid, other current assets, and other long-term assets

 

(5,267

)

 

 

1,453

 

Accounts payable

 

(406

)

 

 

473

 

Accrued personnel-related expenses

 

(2,968

)

 

 

(4,279

)

Deferred revenue

 

(2,304

)

 

 

(3,183

)

Deferred rent

 

625

 

 

 

(216

)

Other accrued liabilities and other long-term liabilities

 

2,235

 

 

 

2,113

 

Net cash used in operating activities

 

(10,622

)

 

 

(27,929

)

Investing activities

 

 

 

 

 

 

 

Purchases of marketable securities

 

(153,957

)

 

 

(125,701

)

Maturities of marketable securities

 

63,250

 

 

 

205,750

 

Purchases of property and equipment

 

(840

)

 

 

(1,824

)

Net cash (used in) provided by investing activities

 

(91,547

)

 

 

78,225

 

Financing activities

 

 

 

 

 

 

 

Proceeds from public offering of common stock, net

 

107,613

 

 

 

 

Proceeds from exercise of stock options

 

1,704

 

 

 

1,048

 

Repurchase of shares to satisfy tax withholding obligations

 

(997

)

 

 

(11,813

)

Net cash provided by (used in) financing activities

 

108,320

 

 

 

(10,765

)

Net increase in cash and cash equivalents and restricted cash

 

6,151

 

 

 

39,531

 

Cash, cash equivalents and restricted cash at beginning of period

 

61,333

 

 

 

9,196

 

Cash, cash equivalents and restricted cash at end of period

$

67,484

 

 

$

48,727

 

 

 

 

 

 

 

 

 

Supplemental schedule of noncash investing activities

 

 

 

 

 

 

 

Unpaid property and equipment included in accrued liabilities

$

531

 

 

$

1,548

 

 

 

 

 

 

 

 

 

Supplemental cash flow information

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

$

59,790

 

 

$

7,653

 

Restricted cash at beginning of period

 

1,543

 

 

 

1,543

 

Cash, cash equivalents and restricted cash at beginning of period

$

61,333

 

 

$

9,196

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

$

65,941

 

 

$

47,184

 

Restricted cash at end of period

 

1,543

 

 

 

1,543

 

Cash, cash equivalents and restricted cash at end of period

$

67,484

 

 

$

48,727

 

 

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

 

 

7


 

FIVE PRIME THERAPEUTICS, INC.

Notes to Condensed Financial Statements

March 31, 2018

 

1.

Description of Business

Five Prime Therapeutics, Inc. (we, us, our, or the company) is a clinical-stage biotechnology company focused on discovering and developing innovative protein therapeutics. We were incorporated in December 2001 in Delaware. Our operations are based in South San Francisco, California and we operate in one segment.

Unaudited Interim Financial Information

The accompanying financial information as of March 31, 2018 is unaudited. The condensed financial statements included in this report reflect all adjustments (consisting only of normal recurring adjustments) that our management considers necessary for the fair statement of the results of operations for the interim periods covered and of our financial condition at the date of the interim balance sheet. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The results for interim periods are not necessarily indicative of the results for the entire year or any other interim period. The accompanying condensed financial statements and related financial information should be read in conjunction with the audited financial statements and the related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2017, or our Annual Report, filed with the U.S. Securities and Exchange Commission, or the SEC, on February 27, 2018, as amended by our Annual Report on Form 10-K/A, as filed with the SEC on March 12, 2018, or, collectively our Annual Report.

2.

Summary of Significant Accounting Policies

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. Actual results could differ materially from those estimates.

Restricted Cash

Restricted cash consists of a certificate of deposit held by our bank as collateral for a standby letter of credit in the same notional amount by our landlord to secure our obligations under our corporate office and laboratory facility lease that we entered into in December 2016. We are required to maintain this restricted cash balance for the duration of this lease, the amount of which is subject to reduction starting on January 1, 2023, if certain conditions are met.

Fair Value of Financial Instruments

We determine the fair value of financial and nonfinancial assets and liabilities using the fair value hierarchy, which describes three levels of inputs that may be used to measure fair value, as follows:

Level 1—Quoted prices in active markets for identical assets or liabilities;

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

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

We determine the fair value of Level 1 assets using quoted prices in active markets for identical assets. We review trading activity and pricing for Level 2 investments as of each measurement date. Level 2 inputs, which are obtained from various third-party data providers, represent quoted prices for similar assets in active markets and were derived from observable market data, or, if not directly observable, were derived from or corroborated by other observable market data. There were no transfers between Level 1 and Level 2 securities in the periods presented.

In certain cases where there is limited activity or less transparency around inputs to valuation, we classify securities as Level 3 within the valuation hierarchy. We do not have any assets or liabilities measured using Level 3 inputs as of March 31, 2018.

8


 

The following table summarizes our financial instruments that were measured at fair value on a recurring basis by level of input within the fair value hierarchy defined above (in thousands):

 

 

March 31, 2018

 

 

 

 

 

 

Basis of Fair Value

 

 

 

 

 

 

Measurements

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

19,119

 

 

$

19,119

 

 

$

 

 

$

 

U.S. Treasury securities

 

309,415

 

 

 

309,415

 

 

 

 

 

 

 

Corporate bonds

 

15,183

 

 

 

 

 

 

15,183

 

 

 

 

Commercial paper

 

31,523

 

 

 

 

 

 

31,523

 

 

 

 

Certificate of deposit

 

1,543

 

 

 

 

 

 

1,543

 

 

 

 

Total

$

376,783

 

 

$

328,534

 

 

$

48,249

 

 

$

 

 

 

 

December 31, 2017

 

 

 

 

 

 

Basis of Fair Value

 

 

 

 

 

 

Measurements

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

31,802

 

 

$

31,802

 

 

$

 

 

$

 

U.S. Treasury securities

 

232,900

 

 

 

232,900

 

 

 

 

 

 

 

Certificate of deposit

 

1,543

 

 

 

 

 

 

1,543

 

 

 

 

Total

$

266,245

 

 

$

264,702

 

 

$

1,543

 

 

$

 

 

Revenue Recognition

Effective January 1, 2018, we adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), or Topic 606, using the modified retrospective transition method. Topic 606 provides a unified model to determine how revenue is recognized. We determine revenue recognition for arrangements within the scope of Topic 606 by performing the following five steps: (i) identify the contract; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when, or as, the company satisfies a performance obligation. 

The terms of our collaborative research and development agreements include up-front and license fees, research funding, milestone and other contingent payments to us for the achievement of defined collaboration objectives and certain preclinical, clinical, regulatory and sales-based events, as well as royalties on sales of commercialized products. Arrangements that include up-front payments are recorded as deferred revenue upon receipt or when due and may require deferral of revenue recognition to a future period until we perform obligations under these arrangements. We record research funding payable to us as accounts receivable when our right to consideration is unconditional. The event-based milestone payments represent variable consideration, and we use the most likely amount method to estimate this variable consideration. Given the high degree of uncertainty around achievement of these milestones, we determine the milestone amounts to be fully constrained and do not recognize revenue until the uncertainty associated with these payments is resolved. We will recognize revenue from sales-based royalty payments when or as the sales occur. We will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur.

A performance obligation is a promise in a contract to transfer a distinct good or service to our collaborative partners and is the unit of account in Topic 606. A contract’s transaction price is allocated to each distinct performance obligation based on relative standalone selling price and recognized as revenue when, or as, the performance obligation is satisfied. Under Topic 606, we elected to use the practical expedients permitted related to adoption, which do not require us to disclose certain information regarding our remaining performance obligations as of the end of the reporting period. Topic 606 is applicable for revenue recognized in accordance with the practical expedient for measuring progress toward satisfaction of a performance obligation, and variable consideration classified as a sales-based or usage-based royalty promised in exchange for a license.

9


 

Net Loss Per Share of Common Stock

We compute basic net loss per common share by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period.

We excluded the following securities from the calculation of diluted net loss per share as the effect would have been antidilutive (in thousands):

 

 

Three Months Ended

 

 

March 31,

 

 

2018

 

 

2017

 

Options to purchase common stock

 

4,032

 

 

 

3,711

 

Restricted stock awards (RSAs)

 

829

 

 

 

1,047

 

 

 

4,861

 

 

 

4,758

 

 

Accounting Pronouncements Adopted in 2018

In May 2014, the Financial Accounting Standards Board, or FASB, issued Topic 606, which supersedes nearly all existing revenue recognition guidance under GAAP. The FASB subsequently issued amendments to Topic 606 that have the same effective date and transition date. The core principle of Topic 606 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Topic 606 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP, including identifying performance obligations in a contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.

We adopted this new guidance, effective January 1, 2018, using the modified retrospective transition method, in which the standard is applied as of the date of initial adoption. We recorded the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings. The adoption of the new revenue recognition guidance resulted in a decrease of $1.4 million to deferred revenue and an increase of $1.4 million to retained earnings as of January 1, 2018. We determined that the classification between deferred revenue, current portion, and deferred revenue, long-term portion, will change from the adoption of Topic 606. We concluded that we will classify deferred revenue for all licensing and collaboration arrangements as deferred revenue, long-term and reclassified to deferred revenue, current when the remaining term of the estimated performance period is one year or less.

Our adoption of Topic 606 on January 1, 2018 affected the following financial statement line items:

 

Condensed Statements of Operations

 

Three Months ended March 31, 2018

 

(in thousands, except per share data)

Under Topic 606

 

Under Topic 605

 

Effect of change

 

Collaboration and license revenue

$

32,486

 

$

33,693

 

$

(1,207

)

Operating expenses

 

54,030

 

 

54,030

 

 

 

Operating loss

$

(21,544

)

$

(20,337

)

$

(1,207

)

Net loss

$

(20,390

)

$

(19,183

)

$

(1,207

)

Net loss per share applicable to common stockholders - basic and diluted

$

(0.63

)

$

(0.59

)

$

(0.04

)

Condensed Balance Sheets

 

As of March 31, 2018

 

(in thousands)

Under Topic 606

 

Under Topic 605

 

Effect of change

 

Receivable from collaborative partner

$

4,269

 

$

4,269

 

$

 

Deferred revenue, current portion

 

4,443

 

 

11,773

 

 

(7,330

)

Deferred revenue, long-term portion

 

14,816

 

 

7,652

 

 

7,164

 

Accumulated deficit

 

(174,623

)

 

(174,789

)

 

166

 

10


 

Condensed Statements of Cash Flows

 

Three Months ended March 31, 2018

 

(in thousands)

Under Topic 606

 

Under Topic 605

 

Effect of change

 

Net loss

$

(20,390

)

$

(19,183

)

$

(1,207

)

Decrease in deferred revenue in connection with Topic 606 adoption

 

1,373

 

 

 

 

1,373

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

 

 

     Receivable from collaborative partner

 

8,864

 

 

8,864

 

 

 

     Deferred revenue

 

(3,677

)

 

(3,511

)

 

(166

)

Cash, cash equivalents and restricted cash at beginning of period

 

61,333

 

 

61,333

 

 

 

Cash, cash equivalents and restricted cash at end of period

 

67,484

 

 

67,484

 

 

 

In May 2017, FASB issued ASU 2017-09 Compensation-Stock Compensation (Topic 718) – Scope of Modification Accounting, or ASU 2017-09, which amends the scope of modification accounting for share-based payment arrangements. Specifically, an entity would not apply modification accounting to an equity award if the fair value, vesting conditions, and classification of such award are the same immediately before and after the modification. We adopted the standard effective January 1, 2018 to be applied prospectively to awards modified on or after the effective date. We do not have any arrangements within the scope of ASU 2017-09 as of the adoption date and do not expect the adoption to have a material impact on our consolidated financial statements.

In November 2016, FASB issued ASU 2016-18 Statement of Cash Flows (Topic 230) – Restricted Cash, or ASU 2016-18. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. We adopted ASU 2016-18, effective January 1, 2018, to be applied retrospectively and revised the beginning and ending balance of our statement of cash flows to include restricted cash. Other than the change in presentation in the accompanying consolidated statement of cash flows, the adoption of this guidance had no effect on our financial position, results of operations or liquidity.

Accounting Pronouncements Not Yet Adopted

In February 2016, FASB issued ASU 2016-02 Leases (Topic 842), or ASU 2016-02, which amends existing guidance to require substantially all leases to be recognized by lessees on their balance sheet as a right-of-use asset and corresponding lease liability, including leases currently accounted for as operating leases. ASU 2016-02 will become effective January 1, 2019 and will apply to all annual and interim reporting periods thereafter. Early adoption is permitted. Under ASU 2016-02, agreements executed prior to January 1, 2019 that are currently considered leases are expected to be recognized on the consolidated balance sheet as a right-to-use lease asset and a lease liability. We expect that our recognition of expense on our statement of operations under ASU 2016-02 will be similar to our recognition of expense under the current accounting standard.

11


 

3.Cash Equivalents and Marketable Securities

The following table summarizes our cash equivalents and marketable securities (in thousands):

 

 

March 31, 2018

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

Cost Basis

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Money market funds

$

19,119

 

 

$

 

 

$

 

 

$

19,119

 

U.S. Treasury securities

 

309,997

 

 

 

 

 

 

(582

)

 

 

309,415

 

Corporate bonds

 

15,184

 

 

 

1

 

 

 

(2

)

 

 

15,183

 

Commercial paper

 

31,526

 

 

 

4

 

 

 

(7

)

 

 

31,523

 

Total cash equivalents and marketable securities

 

375,826

 

 

 

5

 

 

 

(591

)

 

 

375,240

 

Less: cash equivalents

 

(51,751

)

 

 

(5

)

 

 

1

 

 

 

(51,755

)

Total marketable securities

$

324,075

 

 

$

 

 

$

(590

)

 

$

323,485

 

 

 

 

December 31, 2017

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

Cost Basis

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Money market funds

$

31,802

 

 

$

 

 

$

 

 

$

31,802

 

U.S. Treasury securities

 

233,376

 

 

 

 

 

 

(476

)

 

 

232,900

 

Total cash equivalents and marketable securities

 

265,178

 

 

 

 

 

 

(476

)

 

 

264,702

 

Less: cash equivalents

 

(31,802

)

 

 

 

 

 

 

 

 

(31,802

)

Total marketable securities

$

233,376

 

 

$

 

 

$

(476

)

 

$

232,900

 

 

As of March 31, 2018, the amortized cost and estimated fair value of our available-for-sale securities by contractual maturity are shown below (in thousands):

 

 

Amortized

 

 

Estimated

 

 

Cost

 

 

Fair Value

 

Debt securities maturing:

 

 

 

 

 

 

 

In one year or less

$

304,214

 

 

$

303,652

 

In one to two years

 

19,861

 

 

 

19,833

 

Total marketable securities

$

324,075

 

 

$

323,485

 

 

We determined that the gross unrealized losses on our marketable securities as of March 31, 2018 were temporary in nature. We currently do not intend to sell these securities prior to maturity and do not consider these investments to be other-than-temporarily impaired at March 31, 2018. There were no sales of available-for-sale securities in any of the periods presented.

4.

Equity Incentive Plans

The following table summarizes option activity under our equity incentive plans and related information:

 

 

Options Outstanding

 

 

 

 

 

 

 

 

 

 

Weighted

 

 

 

 

 

 

Weighted

 

 

Average

 

 

 

 

 

 

Average

 

 

Remaining

 

 

Number of

 

 

Exercise Price

 

 

Contractual

 

 

Shares

 

 

Per Share

 

 

Term (years)

 

Balance at December 31, 2017

 

3,867,645

 

 

$

30.35

 

 

 

 

 

Options granted

 

527,850

 

 

$

18.72

 

 

 

 

 

Options exercised

 

(182,820

)

 

$

9.32

 

 

 

 

 

Options forfeited

 

(19,775

)

 

$

38.30

 

 

 

 

 

Options expired

 

(134,705

)

 

$

36.60

 

 

 

 

 

Balance at March 31, 2018

 

4,058,195

 

 

$

29.54

 

 

7.26

 

Options exercisable at March 31, 2018

 

1,897,326

 

 

$

24.42

 

 

 

6.05

 

 

12


 

We have granted restricted stock awards, or RSAs, to certain of our employees, some of which are subject to performance conditions. RSAs are share awards that entitle the holder to receive freely tradable shares of our common stock upon vesting and are not forfeitable once fully vested. We based the fair value of RSAs on the closing sale price of our common stock on the grant date. For awards subject to performance conditions, we recognize stock-based compensation expense using the accelerated attribution recognition method when it is probable that the performance condition will be achieved.

The following table summarizes RSA activity under our 2013 Omnibus Incentive Plan and related information:

 

RSAs Outstanding

 

 

 

 

 

 

Weighted-Average

 

 

Number

 

 

Grant-Date

 

 

of Shares

 

 

Fair Value

 

Unvested balance at December 31, 2017

 

803,417

 

 

$

40.24

 

RSAs granted

 

274,250

 

 

$

18.82

 

RSAs vested

 

(128,359

)

 

$

42.29

 

RSAs forfeited

 

(18,096

)

 

$

36.13

 

Unvested balance at March 31, 2018

 

931,212

 

 

$

33.73

 

 

 

 

 

 

 

 

 

As of March 31, 2018, there were 1,894,733 shares of common stock available for future issuance under our 2013 Omnibus Incentive Plan.

Stock-Based Compensation

Total stock-based compensation expense recognized was as follows (in thousands):

 

 

Three Months Ended

 

 

March 31,

 

 

2018

 

 

2017

 

Research and development

$

3,934

 

 

$

5,286

 

General and administrative

$

3,886

 

 

$

4,601

 

Total

$

7,820

 

 

$

9,887

 

 

We estimated the fair value of stock options using the Black-Scholes option-pricing model based on the date of grant of the applicable stock option with the following assumptions:

 

 

Three Months Ended

 

March 31,

 

2018

 

2017

Expected term (years)

6.0-6.3

 

6.0-6.3

Expected volatility

70%

 

68%

Risk-free interest rate

2.6%

 

2.1%

Expected dividend yield

0%

 

0%

 

As of March 31, 2018, we had $43.7 million of total unrecognized compensation expense related to unvested employee and director stock options that we expect to recognize over a weighted-average period of 2.7 years. Additionally, we had $24.4 million of total unrecognized compensation expense related to employee and director RSAs that we expect to recognize over a weighted-average period of 2.1 years.

13


 

5.License and Collaboration Arrangements

See Note 9 to the audited consolidated financial statements included in Part V, Item 15 of our Annual Report for information on our license and collaboration agreements.

The following table presents changes during the three months ended March 31, 2018 in the balances of our contract assets, including receivables from collaborative partners, and contract liabilities, including deferred revenue, as compared to what we disclosed in our Annual Report.

(in thousands)

Contract Assets

 

Balance at December 31, 2017

$

13,133

 

     Additions

 

30,296

 

     Deductions

 

(39,160

)

Balance at March 31, 2018

$

4,269

 

 

 

 

 

(in thousands)

Contract Liabilities

 

Balance at December 31, 2017

$

22,936

 

     Additions for advanced billings

 

1,015

 

     Deductions for performance obligations satisfied in current period

 

(3,319

)

     Deductions for performance obligations satisfied in previous periods in connection with

     Topic 606 adoption

 

(1,373

)

Balance at March 31, 2018

$

19,259

 

Bristol-Myers Squibb Company

Immuno-Oncology Research Collaboration

In March 2014, we entered into a research collaboration and license agreement, or the immuno-oncology research collaboration, with Bristol-Myers Squibb Company, or BMS.

We identified one performance obligation under the immuno-oncology research collaboration with BMS for the research license to access our technology, the exclusive commercial license and research activities. BMS’ options to select additional collaboration targets are not priced at a discount and therefore do not represent performance obligations for which the transaction price would be allocated. The transaction price includes the $20.0 million non-refundable up-front fee, $13.7 million of research funding and $2.4 million of equity premium. We concluded that the transaction price should not include the variable consideration related to maintenance fees and unachieved clinical and regulatory development milestones as they were considered to be constrained as it is probable that the inclusion of such variable consideration could result in a significant reversal in revenue in the future. We will recognize any consideration related to sales-based milestones (including royalties) when the related sales occur, as we have determined that these amounts relate predominantly to the license granted and therefore will be recognized on the later to occur of satisfaction of the performance obligation, or the occurrence of the related sales. We will re-evaluate the transaction price at each reporting period. For the three months ended March 31, 2018, no adjustments were made to the transaction price.

Upon adoption of Topic 606, we recognized an additional $0.7 million of revenue, through a decrease to deferred revenue and an increase to beginning retained earnings, based on the difference between the input method currently used under Topic 606 and the ratable recognition previously used under Topic 605. Under the input method, we recognize revenue on the basis of our efforts or inputs applicable to the satisfaction of a performance obligation (e.g., resources consumed, labor hours expended, costs incurred, or time elapsed) relative to the total expected inputs applicable to the satisfaction of that performance obligation. We concluded that we will recognize revenue based on actual costs incurred as a percentage of total budgeted costs as we complete our performance obligation. Revenue allocated to the performance obligation, $1.6 million, was recognized under Topic 606 for the three months ended March 31, 2018. Through March 31, 2018, we had recognized $30.1 million of the transaction price as collaboration revenue under the agreement. The remaining transaction price of $6.0 million will be recognized as revenue under the input method over the estimated performance period. 

14


 

License and Collaboration Agreement

In October 2015, we entered into a license and collaboration agreement, or the cabiralizumab collaboration agreement, with BMS. The cabiralizumab collaboration agreement supersedes the clinical trial collaboration agreement we entered into with BMS in November 2014, or the original collaboration agreement. We assessed the two agreements separately as standalone agreements under Topic 606.

Under the original collaboration agreement, we identified one performance obligation for the execution of Phase 1a/1 clinical trial of cabiralizumab in combination with Opdivo® (nivolumab) and the manufacturing and supply of cabiralizumab. The transaction price consists of the $30.0 million non-refundable up-front fee under the original collaboration agreement. We concluded that the transaction price should include the variable consideration for reimbursements when received as part of the transfer of services.

We used the input method to measure progress toward completion of the performance obligation and concluded that we will recognize revenue based on actual costs incurred for clinical research organizations, or CROs, and laboratory services as a percentage of total budgeted costs as we complete our performance obligation. We will recognize revenue from reimbursements when we have the right to invoice BMS. No adjustment was necessary upon adoption of Topic 606. We recognized $1.4 million of revenue allocated to the performance obligation under Topic 606 for the three months ended March 31, 2018. Total revenue recognized for the quarter, including progress made toward the performance obligation and reimbursements, was $4.5 million. Through March 31, 2018, we recognized $19.6 million of the transaction price as collaboration revenue under the agreement. The remaining transaction price of $10.4 million is recorded in deferred revenue as of March 31, 2018 and will be recognized as revenue under the input method over the estimated performance period.

Under the cabiralizumab collaboration agreement, we identified the following performance obligations: (1) license to BMS; and (2) transfer of licensed know-how to BMS. The transaction price consists of the $350.0 million non-refundable up-front fee. We concluded that the transaction price should not yet include the milestone payments as they are fully constrained. We will recognize any consideration related to sales-based milestones (including royalties) when the related sales occur, as we have determined that these amounts relate predominantly to the license granted and therefore are recognized on the later to occur of satisfaction of the performance obligation, or occurrence of the related sales. We will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur. For the three months ended March 31, 2018, no adjustments were made to the transaction price.

The $350.0 million non-refundable up-front fee was fully recognized concurrent with the transfer of the license and know-how in 2015. As such, no adjustment to revenue is necessary under Topic 606. In January 2018, we recognized $25.0 million related to a milestone achieved for the dosing of the first patient in BMS’s randomized Phase 2 clinical trial of cabiralizumab in combination with Opdivo® (nivolumab), with and without chemotherapy, as a treatment for patients with second-line pancreatic cancer.

Zai Lab China License and Collaboration Agreement

In December 2017, we entered into a license and collaboration agreement, or the China collaboration agreement, with Zai Lab (Shanghai) Co., Ltd., or Zai Lab, pursuant to which we granted Zai Lab an exclusive license to develop and commercialize bemarituzumab in China, Hong Kong, Macau and Taiwan, each a region, and collectively, the territory.

We evaluated the China collaboration agreement under Topic 606. Based on that evaluation, we identified the following performance obligations: (1) license grant to Zai Lab along with the transfer of licensed know-how, development drug supply and global development activities; (2) commercial drug supply; and (3) development of companion diagnostics. The $5.0 million non-refundable up-front fee, net of value-added tax and other withholdings of $0.8 million and the $8.3 million of expected reimbursement from Zai Lab for global development activities are included as part of the transaction price. We determined the $8.3 million of expected reimbursements from Zai Lab based on the probability-weighted amounts of a range of possible consideration amounts. We have not included the clinical and regulatory development milestone payments in the transaction price as all such milestone amounts are fully constrained. We will recognize any consideration related to sales-based milestones (including royalties) when the related sales occur, as we determined that these amounts relate predominantly to the license granted and therefore will be recognized on the later to occur of satisfaction of the performance obligation, or the occurrence of related sales. Zai Lab’s option to purchase commercial drug supply from us represents a material right and we will include the additional consideration to us for such supply in the transaction price as Zai’s payment obligations for such supply become due under the commercial supply agreement we and Zai Lab would enter into. We concluded that the reimbursement of costs incurred for the development of companion diagnostics qualifies for the practical expedient under Topic 606 which allows us to recognize revenue in the amount for which we have a right to invoice if our right to consideration in an amount that corresponds directly to the value to the customer of our performance completed to date. We therefore effectively bypass the steps of determining the transaction price and allocating that transaction price to the performance obligation. We will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur. For the three months ended March 31, 2018, no adjustments were made to the transaction price.

15


 

We use the input method to measure progress toward completion of the performance obligation for the license grant, transfer of licensed know-how, development drug supply and global development activities. We concluded that revenue will be recognized based on actual costs incurred for CROs as a percentage of total budgeted costs as we complete our performance obligation. We will recognize revenue from reimbursements for commercial drug supply and for the development of companion diagnostics when we have the right to invoice Zai Lab.

No adjustment was necessary upon adoption of Topic 606. For the three months ended March 31, 2018, revenue for the first performance obligation was $0.3 million. Total revenue recognized for the third performance obligation during the quarter was $0.9 million. Of the remaining transaction price of $12.2 million, $4.4 million is recorded in deferred revenue and will be recognized over the estimated performance period for satisfaction of the performance obligation. $7.8 million of the transaction price will be recorded in deferred revenue when invoiced as global development activities are incurred. 

GlaxoSmithKline LLC

Respiratory Diseases and Muscle Diseases Collaborations

In April 2012, we entered into a research collaboration and license agreement, or the respiratory diseases collaboration, with GlaxoSmithKline LLC, or GSK, to identify new therapeutic approaches to treat refractory asthma and chronic obstructive pulmonary disease, or COPD, with a particular focus on identifying novel protein therapeutics and antibody targets. In January 2016, we amended our respiratory diseases collaboration to extend the research term by three months to July 2016 to allow additional validation of the protein targets we discovered and to increase the research funding. In July 2010, we entered into a research collaboration and license agreement, or the muscle diseases collaboration with GSK, to identify potential drug targets and drug candidates to treat skeletal muscle diseases. We conducted three customized cell-based screens and one in vivo screen of our protein libraries under the muscle diseases collaboration. The research term under the muscle diseases collaboration ended in May 2014 and the agreement expired in April 2018.

We assessed the respiratory diseases collaboration and muscle diseases collaboration in accordance with Topic 606. Based on that assessment, we identified the one performance obligation under each collaboration for the research license and research activities. The non-refundable up-front fees and the equity premiums are included as part of the transaction prices for each collaboration. We will include the variable consideration for research services in the transaction prices of the respective agreements when received as part of the transfer of services. The clinical and regulatory development milestone payments have not been included in the transaction prices, as all such milestone amounts are fully constrained. We will recognize any consideration related to sales-based milestones, including royalties when the related sales occur, as we have determined that these amounts relate predominantly to the license granted and therefore will be recognized on the later to occur of satisfaction of the performance obligation or the related sales. Under the respiratory diseases collaboration, GSK’s option to add research funding were also not included in the transaction price. As the muscle diseases collaboration with GSK expired in April 2018, we are no longer eligible to receive milestone payments or royalties under that agreement. We will re-evaluate the transaction price for the respiratory diseases collaboration in each reporting period as uncertain events are resolved and other changes in circumstances occur. For the three months ended March 31, 2018, no adjustments were made to the transaction prices of the collaborations with GSK.

Under the respiratory diseases collaboration and the muscle diseases collaboration, the non-refundable up-front fees, the equity premiums and the payment for research activities were fully recognized in 2016 and 2014, respectively. As the performance obligations were satisfied in prior years, no adjustment to revenue is necessary under Topic 606.

16


 

UCB Fibrosis and CNS Collaboration

In March 2013, we entered into a research collaboration and license agreement, or the fibrosis and CNS collaboration, with UCB Pharma, S.A., or UCB, to identify potential biologics targets and therapeutics in the areas of fibrosis-related immunologic diseases and central nervous system disorders.

We assessed the fibrosis and CNS collaboration under Topic 606. Based on that assessment, we identified research activities as our only performance obligation. UCB’s options to select additional collaboration targets and to license exclusive rights to selected targets are not priced at a discount and therefore do not represent performance obligations for which the transaction price would be allocated. The transaction price includes the $6.0 million non-refundable up-front fee, the $6.6 million technology access fee, the $1.0 million reimbursement for reagent costs and the $2.0 million of research funding. We have not included the clinical and regulatory development milestone payments in the transaction price as all such milestone amounts are fully constrained. We will recognize any consideration related to sales-based milestones, including royalties, when the related sales occur, as we have determined that these amounts relate predominantly to the license granted and therefore will be recognized on the later to occur of satisfaction of the performance obligation or the related sales. We will re-evaluate the transaction price in each reporting period as uncertain events are resolved and other changes in circumstances occur. For the three months ended March 31, 2018, there was no change in the transaction price.

Upon adoption of Topic 606, we recognized an additional $0.6 million of revenue, through a decrease to deferred revenue and an increase to beginning retained earnings, based on the difference between the input method currently used under Topic 606 and the ratable recognition previously used under Topic 605. We use the input method to measure progress toward completion of the performance obligation and concluded that revenue will be recognized based on actual full time equivalent labor hours expended as a percentage of total budgeted costs. The $0.6 million adjustment recorded upon the adoption of Topic 606 recognized the remainder of the transaction price. In March 2018, UCB triggered a $0.3 million milestone payment to us upon selection of an undisclosed confirmed target for further development.

17


 

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

You should read the following management’s discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed financial statements and notes thereto included in Part I, Item 1 of this Quarterly Report on Form 10-Q and with our audited financial statements and related notes thereto for the year ended December 31, 2017 included in our Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission, or the SEC, on February 27, 2018, as amended by our Annual Report on Form 10-K/A, as filed with the SEC on March 12, 2018, or, collectively, our Annual Report.

Overview

We are a clinical-stage biotechnology company focused on discovering and developing innovative protein therapeutics to improve the lives of patients with serious diseases. Each of our product candidates has an innovative mechanism of action and addresses patient populations for which better therapies are needed. We have an emphasis in immuno-oncology, an area in which we have clinical, preclinical, research and discovery programs and product and discovery collaborations. In addition, we plan to use companion diagnostics where appropriate to allow us to select patients most likely to benefit from treatment with our product candidates. Our most advanced product candidates are identified below.

 

Cabiralizumab (FPA008) is an antibody that inhibits colony stimulating factor-1, or CSF1, receptor, or CSF1R, that we are studying in clinical trials as a monotherapy in tenosynovial giant cell tumor, also known as diffuse pigmented villonodular synovitis, or PVNS, and in multiple cancers in combination with Bristol-Myers Squibb Company’s PD-1 immune checkpoint inhibitor, Opdivo® (nivolumab). In October 2015, we entered into a license and collaboration agreement, or the cabiralizumab collaboration agreement, with Bristol-Myers Squibb Company, or BMS, pursuant to which we granted BMS an exclusive worldwide license for the development and commercialization of cabiralizumab.

 

Bemarituzumab (FPA144) is an antibody that inhibits fibroblast growth factor receptor 2b, or FGFR2b, that we are studying in combination with 5-fluorouracil (5-FU), leucovorin and oxaliplatin, a standard of care chemotherapy regimen known as mFOLFOX6, as front-line treatment of patients with gastric (stomach) or gastroesophageal junction, or GEJ, cancer that overexpresses FGFR2b. In December 2017, we entered into a license and collaboration agreement, or the China collaboration agreement, with Zai Lab (Shanghai) Co., Ltd., or Zai Lab, pursuant to which we granted Zai Lab an exclusive license to develop and commercialize bemarituzumab in China, Hong Kong, Macau and Taiwan.

 

FPA150 is a CD8 T cell checkpoint inhibitor antibody that targets B7-H4 that we are studying in clinical trials as monotherapy in multiple cancers.

We have a differentiated target discovery platform and comprehensive libraries of transmembrane and extracellular soluble proteins that we believe encompass substantially all the body’s medically important targets for protein therapeutics. We have identified approximately 700 of these proteins, which we refer to as the immunome, that we believe modulate immune cell interactions and may be important in understanding and treating cancer in patients using immuno-oncology therapeutics. Our target discovery platform and capabilities position us well to explore pathways in cancer and inflammation and their intersection in immuno-oncology, an area of oncology with significant therapeutic potential and the focus of our research activities. We are applying our biologics discovery platform, including cell-based screening, immunome-by-immunome biophysical interaction screening, in vivo screening, receptor-ligand matching technologies and bioinformatics, to our immuno-oncology research programs. We have identified several targets that we believe could be useful in immuno-oncology that we are actively validating. We are also conducting research to discover additional targets. We generate and preclinically test therapeutic proteins, including antibodies and fusion proteins, containing or directed to the targets we discover and validate. We plan to continue to advance selected therapeutic candidates into clinical development.

We have no products approved for commercial sale and have not generated any revenue from product sales to date. We continue to incur significant research and development and other expenses related to our ongoing operations. We expect that our expenses will increase as we advance our product candidates into later stages of clinical development and increase the number of product candidates in clinical development. We have incurred losses in each period since our inception in 2002, with the exception of the fiscal year ended December 31, 2015, due primarily to the $350.0 million up-front payment we received from BMS under our cabiralizumab collaboration agreement, and the fiscal year ended December 31, 2011, due primarily to an up-front payment we received from a collaboration partner. For the three months ended March 31, 2018 and 2017, we reported a net loss of $20.4 million and $33.4 million, respectively.

Our management’s discussion and analysis of our financial condition and results of operations are based upon our unaudited consolidated financial statements included in this Quarterly Report on Form 10-Q, which we prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim periods and with Regulation S-X promulgated under the Securities and Exchange Act of 1934, as amended, or the Exchange Act.

18


 

Clinical Pipeline

The following table shows the stage of development of our most advanced product candidates:

 

______________________________

 

* Partnered with BMS – see “Part I—Item 1. Collaborations” of our Annual Report for a description of our collaboration agreements with BMS.

** Partnered with Zai Lab – see “Part I—Item 1. Collaborations” of our Annual Report for a description of our China collaboration agreement with Zai Lab.

† Excludes investigator-sponsored trials.

‡ Clinical development is being conducted exclusively by BMS.

Cabiralizumab (FPA008)

Cabiralizumab in Immuno-Oncology

We are conducting a Phase 1a/1b clinical trial to evaluate the safety, tolerability and preliminary efficacy of combining cabiralizumab with Opdivo as a potential treatment for a variety of cancers. We have completed enrollment in the trial and continue to treat patients still on study. In the Phase 1b portion of the trial, we are evaluating the safety, tolerability and preliminary efficacy of cabiralizumab in combination with Opdivo in the following tumor settings:

 

non-small cell lung cancer, or NSCLC;

 

anti-PD-1 therapy resistant NSCLC (either de novo or acquired resistance);

 

squamous cell carcinoma of the head and neck;

 

pancreatic cancer;

 

renal cancer;

 

ovarian cancer; and

 

glioblastoma multiforme.

In parallel with advancing into the Phase 1b portion of the trial, we expanded the Phase 1a portion of the trial to continue to study cabiralizumab as monotherapy and in combination with Opdivo in patients with certain tumor types beyond those addressed in the Phase 1b cohorts, including in patients whose tumors are refractory to PD-1 checkpoint inhibitors.

19


 

Based on the clinical data we observed in the cohort of patients with pancreatic cancer in the Phase 1b portion of the trial, we enrolled 35 additional patients with second- or later-line pancreatic cancer in the expansion of the Phase 1a portion of our Phase 1a/1b clinical trial to further evaluate the combination of cabiralizumab and Opdivo in this patient population. We are collecting pre- and on-treatment tumor biopsy samples from these patients and are conducting comprehensive biomarker analyses to evaluate potential biomarker signatures that may predict responsiveness to this therapeutic combination and to assess changes that occur in the tumor microenvironment following treatment.

Additionally, based on such data, BMS opened and is currently enrolling patients in a randomized, open label, multi-arm Phase 2 clinical trial to determine the efficacy of cabiralizumab in combination with Opdivo, with and without chemotherapy, as a treatment for patients with second-line pancreatic cancer (NCT03336216). BMS plans to enroll approximately 160 patients with pancreatic cancer in the study, each of whom will be randomized to one of four study arms based on the patient’s prior therapy. In January 2018, the dosing of the first patient in the trial by BMS triggered a $25 million milestone payment to us pursuant to our cabiralizumab collaboration agreement.

The American Society of Clinical Oncology, or ASCO, has accepted our abstract titled “Pharmacodynamics (PD) and Genomic Profiling of Pts Treated with cabiralizumab (cabira) + nivolumab (NIVO) Provide Evidence of On-Target Tumor Immune Modulations and Support Future Clinical Applications” for a poster presentation at its 2018 Annual Meeting, which will take place in June 2018.

Cabiralizumab in PVNS

We are conducting a Phase 1/2 clinical trial of cabiralizumab monotherapy as a potential treatment for diffuse PVNS. In the Phase 2 portion of the trial, we are evaluating tumor response rate and duration and measures of pain and joint function in PVNS patients. While a small number of patients with inoperable localized tenosynovial giant cell tumor may be included in the trial, our target patient population and a significant majority of the patients enrolled in the trial are patients with diffuse PVNS. We are currently enrolling up to 30 additional patients with PVNS in the Phase 2 portion of the trial to refine the dosing schedule and optimize the therapeutic index of cabiralizumab in PVNS. Data from these additional patients are intended to support the design of a potential pivotal trial of cabiralizumab in PVNS. We plan to decide in the second half of 2018, based on the data we obtain from the new dosing schedule, whether to advance cabiralizumab in 2019 to a pivotal trial in diffuse PVNS patients.

Bemarituzumab (FPA144)

We are completing a Phase 1 clinical trial of bemarituzumab to evaluate the safety, pharmacokinetics, or PK, and efficacy of bemarituzumab as monotherapy in patients with metastatic gastric and GEJ cancer and bladder cancer whose tumors overexpress FGFR2b. In April 2018, after evaluating the feasibility and timing of activating necessary clinical trial sites, the rate of patient enrollment in the bladder cancer cohort of the trial and the current landscape of potential treatment options for bladder cancer patients, we decided to close the bladder cancer cohort. We previously closed enrollment in the four cohorts of patients with gastric and GEJ cancer in the expansion portion of the trial in order to focus our efforts on our Phase 1/3 global registrational trial evaluating bemarituzumab in combination with mFOLFOX6 as front-line treatment of patients with gastric or GEJ cancer that overexpresses FGFR2b, or our FIGHT trial. Following the completion of treatment for patients in the bladder cancer cohort who are currently on study, we will close this Phase 1 clinical trial.

We are currently dosing patients in the Phase 1 safety lead-in portion of our FIGHT trial, during which we are evaluating the safety, tolerability, PK and pharmacodynamics of bemarituzumab in combination with mFOLFOX6 to identify a recommended dose of bemarituzumab to use in the Phase 3 portion of the trial. We expect to initiate the global randomized, controlled Phase 3 portion of the trial in the second half of 2018.

Because the observed incidence of gastric and GEJ cancer is higher in Asian populations than in other populations, in December 2017, we entered into the China collaboration agreement with Zai Lab, pursuant to which we granted Zai Lab an exclusive license to develop and commercialize bemarituzumab in China, Hong Kong, Macau and Taiwan, and pursuant to which Zai Lab will conduct the Phase 3 portion of the FIGHT trial in China. We believe that our collaboration with Zai Lab will allow us to expedite the initiation of the Phase 3 portion of the FIGHT trial in China and will enhance our ability to enroll patients at clinical sites in China, which we believe will reduce the overall time to fully enroll the Phase 3 portion of the FIGHT trial.

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In addition, we are currently dosing patients in a Phase 1 clinical trial in Japan evaluating bemarituzumab monotherapy to treat patients with gastric or GEJ cancer. We expect to complete this trial in 2018. This trial is intended to enable the inclusion of Japanese patients in the FIGHT trial.

In the Phase 3 portion of the FIGHT trial, we will identify patients using an immunohistochemistry, or IHC, test, which measures FGFR2b overexpression in tumor tissue, and a circulating tumor DNA, or ctDNA, blood-based test, which measures FGFR2 gene amplification in the blood. FGFR2 gene amplification causes FGFR2b overexpression, and measuring this gene amplification in the blood is an indirect way of identifying tumors with overexpression that we may otherwise not identify using an IHC test. We are developing both companion diagnostics in parallel with our clinical development of bemarituzumab in collaboration with third-party diagnostic development partners and plan to use both companion diagnostics concurrently to more effectively identify gastric and GEJ cancer patients whose tumors overexpress FGFR2b or amplify the FGFR2 gene. We plan to pursue regulatory approval of each companion diagnostic contemporaneously with regulatory approval of bemarituzumab.

ASCO has accepted our abstract titled “FIGHT: A Phase 3 Randomized, Double-Blind, Placebo Controlled Study Evaluating (Bemarituzumab) FPA144 and Modified FOLFOX6 (mFOLFOX6) in Patients with Previously Untreated Advanced Gastric and Gastroesophageal Cancer with a Dose Finding Phase 1 Lead-In” for a poster presentation at its 2018 Annual Meeting, which will take place in June 2018.

FPA150

In December 2017, we filed an investigational new drug application, or IND, to initiate a Phase 1a/1b clinical trial to evaluate the safety, tolerability and preliminary efficacy of FPA150 monotherapy as a potential treatment for patients with a variety of cancers. In January 2018, we received clearance from the FDA to proceed with the clinical development of FPA150.

We are conducting a Phase 1a/1b clinical trial of FPA150 in multiple cancers. In March 2018, we initiated patient dosing in the Phase 1a portion of the trial, during which we will evaluate FPA150 in escalating doses in advanced solid tumors. Because FPA150 is expected to have an immunomodulatory effect and our Phase 1 trial is the first-in-human evaluation of FPA150, the starting dose of the dose escalation portion of the trial is lower than we would have selected for a development candidate that does not have an immunomodulatory effect. We expect that the Phase 1a dose-escalation portion of our trial will continue into 2019. In the Phase 1b portion of the trial, we plan to evaluate FPA150 in various disease-specific cohorts, including in breast cancer, ovarian cancer, endometrial cancer and urothelial bladder cancer. We are developing an IHC-based assay in collaboration with a diagnostic development partner to select patients whose tumors overexpress B7-H4 during the Phase 1b portion of the trial.

FPT155

We are currently conducting IND-enabling activities for FPT155, with the goal of submitting an IND or its foreign equivalent in the second half of 2018.

Immuno-Oncology Drug Discovery

We are currently focusing our internal research efforts in the area of immuno-oncology. Cancers grow and spread because tumor cells have developed ways to evade elimination by the immune system. For example, cancer cells make proteins that apply the “brakes” to immune cells and prevent immune cells from killing tumor cells. One of the most exciting recent discoveries in cancer therapy has been the identification of ways to release these “brakes” and allow immune cells to once again kill tumor cells. This approach has the potential to not only reduce tumor growth like traditional therapies, but also to potentially eliminate the cancer entirely in some patients. In addition to releasing the “brakes” on immune cells, other discoveries in immuno-oncology have focused on identifying ways to “press on the gas” to amplify the anti-tumor immune response. This second approach targets stimulatory pathways in immune cells. Agents that agonize stimulatory pathways can help immune cells overcome inhibitory signals in the tumor microenvironment, resulting in the killing of tumor cells.

While checkpoint inhibitor therapies have been validated in the clinic with agents targeting the PD-1/PD-L1 and CTLA-4 pathways to release the “brakes,” a significant proportion of patients do not respond to these treatments. New targets for immuno-oncology are needed to address those patients who do not respond to or cannot tolerate traditional therapies or agents currently in development. We are applying all aspects of our differentiated discovery platform to identify protein partners for molecules or other targets known to be involved in the anti-tumor immune response. We believe we have identified promising new antibody targets and ligand traps and are actively researching and validating additional immuno-regulatory targets.

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Financial Overview

Collaboration and License Revenue

We have not generated any revenue from product sales. We have derived our revenue to date from up-front payments, research and development funding and milestone payments under collaboration and license agreements with our collaboration partners and licensees. We currently have an active immuno-oncology research collaboration and cabiralizumab license and collaboration agreement with BMS and an active collaboration and license agreement with Zai Lab. We completed the research term of our research collaboration in respiratory diseases with GSK and our fibrosis and CNS research collaboration with UCB Pharma S.A., or UCB, in July 2016 and March 2016, respectively.

Summary Revenue under Collaboration and License Agreements

The following is a comparison of collaboration and license revenue for the three months ended March 31, 2018 and 2017:

 

 

Three Months Ended

 

 

March 31,

 

(in millions)

2018

 

 

2017

 

Milestone Payments

 

 

 

 

 

 

 

Cabiralizumab Collaboration - BMS

$

25.0

 

 

$

 

Fibrosis and CNS Collaboration - UCB

 

0.3

 

 

 

0.2

 

Other Payments

 

 

 

 

 

 

 

China Collaboration - Zai Lab

 

1.1

 

 

 

 

Cabiralizumab Collaboration - BMS

 

4.5

 

 

 

7.2

 

Immuno-oncology Research Collaboration - BMS

 

1.6

 

 

 

1.9

 

Fibrosis and CNS Collaboration - UCB

 

 

 

 

0.8

 

Total

$

32.5

 

 

$

10.1

 

 

We expect that the level of revenue we generate will fluctuate from period to period as a result of the timing and amount of milestone and other payments we receive in the course of our existing collaborations and licenses or as a result of entry into any new collaborations and license agreements.

Research and Development

Research and development expenses consist of costs we incur for our own and for sponsored and collaborative research and development activities. We expense research and development costs as they are incurred. Research and development costs include employee salaries and benefits for employees in our research and clinical functions, including associated stock-based compensation, laboratory supplies and facility costs, as well as fees we pay to third parties that conduct certain research and development activities on our behalf. We estimate preclinical study and clinical trial expenses based on the services performed pursuant to contracts with research institutions, CROs and clinical manufacturing organizations, or CMOs, that conduct and manage preclinical studies and clinical trials on our behalf based on actual time and expenses that they incur. Further, we accrue expenses related to clinical trials based on the level of patient enrollment and activity contemplated by the applicable agreement with the clinical trial site. We monitor patient enrollment levels and related activity to the extent reasonably possible and adjust estimates accordingly. If we do not identify costs that we have begun to incur or if we underestimate or overestimate the level of services performed or the costs of these services, our actual expenses could differ from our estimates. To date, we have not experienced significant changes in our estimates of preclinical studies and clinical trial expense accruals.

We expense payments for the acquisition and development of technology as research and development costs if, at the time of payment, the technology is under development, has not been approved by the U.S. Food and Drug Administration, or FDA, or other comparable regulatory agencies for marketing, has not reached technical feasibility, or otherwise has no foreseeable alternative future use.

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The following is a comparison of our research and development expenses for the three months ended March 31, 2018 and 2017:

 

 

Three Months Ended

 

 

March 31,

 

(in millions)

2018

 

 

2017

 

Clinical development programs:

 

 

 

 

 

 

 

Cabiralizumab

$

5.5

 

 

$

10.1

 

Bemarituzumab

 

16.0

 

 

 

7.4

 

FPA150

 

6.0

 

 

 

0.1

 

Subtotal clinical development programs

 

27.5

 

 

 

17.6

 

Preclinical programs

 

6.6

 

 

 

7.4

 

Discovery collaborations

 

0.9

 

 

 

1.4

 

Early research and discovery

 

8.6

 

 

 

7.4

 

Total research and development expenses

$

43.6

 

 

$

33.8

 

 

We expect that most of the research and development expenses we incur will continue to relate to activities to support our cabiralizumab, bemarituzumab and FPA150 clinical development programs and our immuno-oncology preclinical, research and discovery efforts. We expect our research and development expenses to increase as we advance our current product candidates through clinical development and additional product candidates into preclinical and clinical development, in particular, as we increase the number and size of our clinical trials, including by advancing into registrational trials, and as we expand our internal immuno-oncology preclinical, research and discovery efforts. We expect that our bemarituzumab development-related expenses will increase at a faster rate than our other research and development expenses as we advance bemarituzumab in our Phase 1/3 FIGHT trial to evaluate bemarituzumab in combination with standard of care chemotherapy. We also expect our FPA150 development-related expenses to increase as our FPA150 program advances through our Phase 1a/1b clinical trial.

The process of conducting preclinical studies and clinical trials necessary to obtain regulatory approval is costly and time-consuming. We or our partners may never succeed in achieving marketing approval for any of our drug candidates. Numerous factors may affect the probability of success for each drug candidate, including preclinical data, clinical data, competition, manufacturing capability and commercial viability.

The successful development of our drug candidates is highly uncertain and may not result in products that are approved for marketing by either the FDA or any comparable foreign regulatory authority. Completion dates and completion costs for each drug candidate can vary significantly and are difficult to predict. Given the uncertainty associated with clinical trial patient enrollment and the risks inherent in the development process, we are unable to predict the duration and completion costs of the current or future clinical trials of our drug candidates or if, or to what extent, we will generate revenues from the commercialization and sale of any of our approved drug candidates. We anticipate we will make determinations as to which programs to pursue and how much funding to direct to each program on an ongoing basis in response to the outcome of research, preclinical and clinical activities with respect to each drug candidate, as well as ongoing assessments as to each drug candidate’s commercial potential. We will need to raise additional capital or may seek to enter into additional product collaborations in the future to advance and complete the development and commercialization of our drug candidates.

General and Administrative

General and administrative expenses consist primarily of employee salaries and related benefits, including associated stock-based compensation, related to our executive, finance, legal, business development, human resource and support functions. Other general and administrative expenses include allocated facility-related costs not otherwise included in research and development expenses, travel expenses and professional fees for auditing and tax and legal services, including intellectual property-related legal services.

Interest Income

Interest income consists of interest income earned on our cash and cash equivalents and marketable securities.

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Critical Accounting Policies and Estimates

We based our management’s discussion and analysis of financial condition and results of operations upon our unaudited condensed financial statements, which we prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. We evaluate our critical accounting policies and estimates on an on-going basis. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, and these estimates 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 financial statements and in Note 2 of our audited financial statements contained in our Annual Report. 

Results of Operations

Comparison for the Three Months Ended March 31, 2018 and 2017

 

 

Three Months Ended

 

 

March 31,

 

(in millions)

2018

 

 

2017

 

Collaboration and license revenue

$

32.5

 

 

$

10.1

 

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

43.6

 

 

 

33.8

 

General and administrative

 

10.5

 

 

 

10.5

 

Total operating expenses

 

54.1

 

 

 

44.3

 

Interest and other income, net

 

1.2

 

 

 

0.7

 

Loss before income tax

 

(20.4

)