fprx-10q_20150630.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

x

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

For the quarterly period ended June 30, 2015

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.)

Two Corporate Drive

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  x    No  ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the 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

 

x

 

 

 

 

Non-accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

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

As of July 31, 2015, the number of outstanding shares of the registrant’s common stock was 25,805,249.

 

 

 

 

 

 


TABLE OF CONTENTS

 

PART I.

  

FINANCIAL INFORMATION

  

4

 

  

 

Item 1.

  

Financial Statements

  

4

 

  

 

  

 

Condensed Balance Sheets as of June 30, 2015 and December 31, 2014

  

4

 

  

 

  

 

Condensed Statements of Operations for the Three and Six Months Ended June 30, 2015 and 2014

  

5

 

  

 

  

 

Condensed Statements of Comprehensive Loss for the Three and Six Months Ended June 30, 2015 and 2014

  

6

 

  

 

  

 

Condensed Statement of Cash Flows for the Six Months Ended June 30, 2015 and 2014

  

7

 

  

 

  

 

Notes to Condensed Financial Statements

  

8

 

  

Item 2.

  

 

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

  

13

 

  

Item 3.

  

 

Quantitative and Qualitative Disclosures About Market Risk

  

21

 

  

Item 4.

  

 

Controls and Procedures

  

21

PART II.

  

 

OTHER INFORMATION

  

22

 

  

Item 1.

  

 

Legal Proceedings

  

22

 

  

Item 1A.

  

 

Risk Factors

  

22

 

  

Item 2.

  

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

46

 

  

Item 6.

  

 

Exhibits

  

46

 

  

 

  

 

Signatures

  

47

 

  

 

  

 

Exhibit Index

  

48

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 or our partners’ ability to timely advance drug candidates into and through clinical data readouts and successful completion of clinical trials alone or in combination with other drugs;

·

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 maintain and establish collaborations;

·

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

·

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

·

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

·

the timing or likelihood of regulatory filings and approvals;

·

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 this report 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, 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 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 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 company research is reliable and the market definitions we use are appropriate, neither such research nor these 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)

 

 

June 30,

 

 

December 31,

 

 

2015

 

 

2014

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

19,096

 

 

$

15,267

 

Marketable securities

 

188,310

 

 

 

133,787

 

Receivable from collaborative partners

 

718

 

 

 

410

 

Prepaid and other current assets

 

2,587

 

 

 

1,794

 

Total current assets

 

210,711

 

 

 

151,258

 

Property and equipment, net

 

4,387

 

 

 

3,794

 

Other long-term assets

 

423

 

 

 

579

 

Total assets

$

215,521

 

 

$

155,631

 

Liabilities and stockholders' equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

1,353

 

 

$

1,096

 

Accrued personnel-related expenses

 

3,094

 

 

 

4,618

 

Other accrued liabilities

 

3,344

 

 

 

1,531

 

Deferred revenue, current portion

 

12,601

 

 

 

11,938

 

Deferred rent, current portion

 

719

 

 

 

632

 

Total current liabilities

 

21,111

 

 

 

19,815

 

Deferred revenue, long-term portion

 

46,800

 

 

 

48,628

 

Deferred rent, long-term portion

 

1,249

 

 

 

1,514

 

Other long-term liabilities

 

442

 

 

 

469

 

Commitments

 

 

 

 

 

 

 

Stockholders' equity:

 

 

 

 

 

 

 

Common stock

 

26

 

 

 

22

 

Preferred stock

 

 

 

 

 

Additional paid-in capital

 

357,329

 

 

 

274,180

 

Accumulated other comprehensive income

 

72

 

 

 

1

 

Accumulated deficit

 

(211,508

)

 

 

(188,998

)

Total stockholders' equity

 

145,919

 

 

 

85,205

 

Total liabilities and stockholders' equity

$

215,521

 

 

$

155,631

 

 

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

 

 

Six Months Ended

 

 

 

 

 

June 30,

 

 

June 30,

 

 

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

Collaboration and license revenue

 

$

6,315

 

 

$

4,981

 

 

$

10,602

 

 

$

8,527

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

13,310

 

 

 

11,873

 

 

 

24,521

 

 

 

20,799

 

 

 

General and administrative

 

 

4,596

 

 

 

3,024

 

 

 

8,816

 

 

 

6,304

 

 

 

Total operating expenses

 

 

17,906

 

 

 

14,897

 

 

 

33,337

 

 

 

27,103

 

 

 

Loss from operations

 

 

(11,591

)

 

 

(9,916

)

 

 

(22,735

)

 

 

(18,576

)

 

 

Interest income

 

 

117

 

 

 

55

 

 

 

225

 

 

 

91

 

 

 

Other expense, net

 

 

 

 

 

(5

)

 

 

 

 

 

(25

)

 

 

Net loss

 

$

(11,474

)

 

$

(9,866

)

 

$

(22,510

)

 

$

(18,510

)

 

 

Basic and diluted net loss per common share

 

$

(0.45

)

 

$

(0.46

)

 

$

(0.89

)

 

$

(0.92

)

 

 

Shares used to compute basic and diluted net loss per common share

 

 

25,690

 

 

 

21,465

 

 

 

25,383

 

 

 

20,160

 

 

 

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

 

 

Six Months Ended

 

 

 

 

 

 

June 30,

 

 

June 30,

 

 

 

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

 

Net loss

 

$

(11,474

)

 

$

(9,866

)

 

$

(22,510

)

 

$

(18,510

)

 

 

 

Other comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain on marketable securities

 

 

41

 

 

 

22

 

 

 

71

 

 

 

38

 

 

 

 

Comprehensive loss

 

$

(11,433

)

 

$

(9,844

)

 

$

(22,439

)

 

$

(18,472

)

 

 

 

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

 

 

 

6


FIVE PRIME THERAPEUTICS, INC.

Condensed Statement of Cash Flows

(In thousands)

 

 

Six Months Ended

 

 

 

June 30,

 

 

 

2015

 

 

2014

 

 

 

 

 

 

Operating activities

 

 

 

 

 

 

 

 

Net loss

$

(22,510

)

 

$

(18,510

)

 

Adjustments to reconcile net loss to net cash used in

   operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

823

 

 

 

772

 

 

Stock-based compensation expense

 

2,203

 

 

 

1,376

 

 

Amortization of premium on marketable securities

 

1,042

 

 

 

628

 

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Receivable from collaborative partners

 

(308

)

 

 

119

 

 

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

 

(637

)

 

 

(33

)

 

Accounts payable

 

257

 

 

 

419

 

 

Accrued personnel-related expenses

 

(1,524

)

 

 

(638

)

 

Deferred revenue

 

(1,165

)

 

 

19,660

 

 

Deferred rent

 

(178

)

 

 

(275

)

 

Other accrued liabilities and other long-term liabilities

 

1,786

 

 

 

2,940

 

 

Net cash provided by (used in) operating activities

 

(20,211

)

 

 

6,458

 

 

Investing activities

 

 

 

 

 

 

 

 

Purchases of marketable securities

 

(102,994

)

 

 

(106,451

)

 

Maturities of marketable securities

 

47,500

 

 

 

45,900

 

 

Purchases of property and equipment

 

(1,416

)

 

 

(985

)

 

Net cash used in investing activities

 

(56,910

)

 

 

(61,536

)

 

Financing activities

 

 

 

 

 

 

 

 

Proceeds from public offering of common stock, net

 

78,693

 

 

 

40,099

 

 

Proceeds from the sale of common stock to collaborative partner

 

 

 

 

18,629

 

 

Proceeds from issuance of common stock under equity incentive plans

 

2,257

 

 

 

1,248

 

 

Net cash provided by financing activities

 

80,950

 

 

 

59,976

 

 

Net increase in cash and cash equivalents

 

3,829

 

 

 

4,898

 

 

Cash and cash equivalents at beginning of period

 

15,267

 

 

 

8,161

 

 

Cash and cash equivalents at end of period

$

19,096

 

 

$

13,059

 

 

 

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

 

 

 

7


FIVE PRIME THERAPEUTICS, INC.

Notes to Condensed Financial Statements

June 30, 2015

 

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 novel protein therapeutics. Protein therapeutics are antibodies or drugs developed from extracellular proteins or protein fragments that block disease processes, including cancer and inflammatory diseases. 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 June 30, 2015 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 the financial condition of the Company at the date of the interim balance sheet. The Condensed Balance Sheet as of December 31, 2014 was derived from audited financial statements, but does not include all disclosures required by generally accepted accounting principles in the United States of America, or GAAP. 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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2014 filed with the U.S. Securities and Exchange Commission.

Follow-on Public Offering

In January 2015, we closed an underwritten public offering of 3,829,994 shares of our common stock, which included shares we issued pursuant to our underwriters’ exercise of their over-allotment option. We received net proceeds of $78.7 million, after underwriting discounts, structuring fees and offering expenses.

 

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 about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements as well as reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from those estimates.

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, 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.

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 Level 3 securities as of June 30, 2015.

8


The following table summarizes, for assets recorded at fair value, the respective fair values and the classifications by level of input within the fair value hierarchy defined above (in thousands):

 

 

June 30, 2015

 

 

 

 

 

 

 

Basis of Fair Value

 

 

 

 

 

 

 

Measurements

 

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

9,842

 

 

$

9,842

 

 

$

 

 

$

 

 

U.S. Treasury securities

 

188,310

 

 

 

188,310

 

 

 

 

 

 

 

 

Total cash equivalents and marketable securities

$

198,152

 

 

$

198,152

 

 

$

 

 

$

 

 

 

 

 

December 31, 2014

 

 

 

 

 

 

Basis of Fair Value

 

 

 

 

 

 

Measurements

 

 

Total

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

$

9,996

 

 

$

9,996

 

 

$

 

 

$

 

U.S. Treasury securities

 

130,786

 

 

 

130,786

 

 

 

 

 

 

 

U.S. government agency securities

 

3,001

 

 

 

 

 

 

3,001

 

 

 

 

Total cash equivalents and marketable securities

$

143,783

 

 

$

140,782

 

 

$

3,001

 

 

$

 

 

  

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 options and restricted stock awards, or RSAs, to purchase shares of common stock (in thousands) from the calculation of diluted net loss per share for all periods presented as the effect would have been antidilutive:

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Options and RSAs to purchase common stock

 

2,604

 

 

 

2,141

 

 

 

2,635

 

 

 

2,177

 

 

 

2,604

 

 

 

2,141

 

 

 

2,635

 

 

 

2,177

 

 

Recently Issued Accounting Standards

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 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. ASU 2014-09 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 U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction  price to each separate performance obligation. ASU 2014-09 is effective for us in our first quarter of fiscal 2018 using either of two methods: (i) retrospective application of ASU 2014-09 to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective application of ASU 2014-09 with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. We are currently evaluating the impact of our pending adoption of ASU 2014-09 on our financial statements.

 

 

9


3.

Cash Equivalents and Marketable Securities

The following is a summary of our cash equivalents and marketable securities (in thousands):

 

 

June 30, 2015

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

Cost Basis

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Money market funds

$

9,842

 

 

$

 

 

$

 

 

$

9,842

 

U.S. Treasury securities

 

188,238

 

 

 

72

 

 

 

 

 

 

188,310

 

 

 

198,080

 

 

 

72

 

 

 

 

 

 

198,152

 

Less: cash equivalents

 

(9,842

)

 

 

 

 

 

 

 

 

(9,842

)

Total marketable securities

$

188,238

 

 

$

72

 

 

$

 

 

$

188,310

 

 

 

 

December 31, 2014

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Estimated

 

 

Cost Basis

 

 

Gains

 

 

Losses

 

 

Fair Value

 

Money market funds

$

9,996

 

 

$

 

 

$

 

 

$

9,996

 

U.S. Treasury securities

 

130,785

 

 

 

18

 

 

 

(17

)

 

 

130,786

 

U.S. government agency securities

 

3,001

 

 

 

 

 

 

 

 

 

3,001

 

 

 

143,782

 

 

 

18

 

 

 

(17

)

 

 

143,783

 

Less: cash equivalents

 

(9,996

)

 

 

 

 

 

 

 

 

(9,996

)

Total marketable securities

$

133,786

 

 

$

18

 

 

$

(17

)

 

$

133,787

 

 

As of June 30, 2015, 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

$

167,407

 

 

$

167,466

 

In one to two years

 

20,831

 

 

 

20,844

 

Total marketable securities

$

188,238

 

 

$

188,310

 

 

We did not have any gross unrealized losses from our marketable securities as of June 30, 2015. We made 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 stock plans and related information:

 

 

Options Outstanding

 

 

 

 

 

 

Weighted

 

 

Weighted

 

 

 

 

 

 

Average

 

 

Average

 

 

Number of

 

 

Exercise Price

 

 

Remaining

 

 

Shares

 

 

Per Share

 

 

Term

 

Balance at December 31, 2014

 

2,684,812

 

 

$

7.85

 

 

 

 

 

Options granted

 

143,288

 

 

$

22.27

 

 

 

 

 

Options exercised

 

(210,704

)

 

$

6.77

 

 

 

 

 

Options forfeited

 

(75,895

)

 

$

8.76

 

 

 

 

 

Options expired

 

(10,465

)

 

$

8.03

 

 

 

 

 

Balance at June 30, 2015

 

2,531,036

 

 

$

8.73

 

 

 

 

 

Options exercisable

 

1,502,968

 

 

$

6.78

 

 

 

5.79

 

 

10


We have granted restricted stock awards, or RSAs, to certain employees. RSAs are share awards that entitle the holder to receive freely tradable shares of our common stock upon vesting and are unforfeitable once fully vested. We based the fair value of RSAs on the closing sales price of our common stock on the grant date.

The following table summarizes the RSAs activity under our stock plans and related information:

 

RSAs Outstanding

 

 

 

 

 

Weighted-Average

 

 

Number

 

Grant-Date

 

 

of Shares

 

Fair Value

 

Unvested balance at January 1, 2015

 

24,000

 

$

12.18

 

RSAs granted

 

70,370

 

$

20.06

 

RSAs vested

 

 

$

 

RSAs forfeited

 

(4,120

)

$

20.06

 

Unvested balance at June 30, 2015

 

90,250

 

$

18.07

 

 

 

 

 

 

 

 

 

As of June 30, 2015, there were 4,102,609 shares of common stock available for future issuance under our 2013 Omnibus Incentive Plan.

Stock-Based Compensation

We calculate employee stock-based compensation expense based on awards ultimately expected to vest reduced by estimated forfeitures. We estimate forfeitures at the time of grant and revise forfeitures, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Total stock-based compensation expense recognized was as follows (in thousands):

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

 

 

 

June 30,

 

 

June 30,

 

 

 

 

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

 

 

Research and development

 

$

596

 

 

$

369

 

 

$

1,105

 

 

$

729

 

 

 

 

 

General and administrative

 

 

616

 

 

 

371

 

 

 

1,098

 

 

 

647

 

 

 

 

 

Total

 

$

1,212

 

 

$

740

 

 

$

2,203

 

 

$

1,376

 

 

 

 

 

 

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

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

June 30,

 

 

June 30,

 

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

Expected term (years)

 

5.5-6.1

 

 

5.3-6.1

 

 

5.5-6.1

 

 

5.3-6.1

 

 

Expected volatility

 

 

71

%

 

 

85

%

 

71-73%

 

 

 

85

%

 

Risk-free interest rate

 

1.4-1.9

 

 

1.6-1.9%

 

 

1.4-1.9

 

 

1.6-1.9%

 

 

Expected dividend yield

 

 

0

%

 

 

0

%

 

 

0

%

 

 

0

%

 

 

As of June 30, 2015, we had $7.2 million of total unrecognized compensation expense related to nonvested employee and director stock options that we expect to recognize over a weighted-average period of 2.5 years.

 

5.

License Agreement

bluebird bio, Inc.

In May 2015, we entered into an exclusive license agreement, referred to as the license agreement, with bluebird bio, Inc., or bluebird, under which we licensed to bluebird human antibodies to an undisclosed cancer target to research, develop and commercialize chimeric antigen receptor (CAR) T cell therapies using these antibodies.

Under the license agreement, bluebird paid us a $1.5 million upfront fee and is obligated to pay us subsequent milestone payments, which together could total up to $131.0 million per licensed product if bluebird achieves certain development, regulatory and commercial milestones. We are also eligible to receive tiered royalties on product sales. bluebird will conduct and fund clinical development as well as regulatory and commercial activities.

11


There are no other deliverables under the agreement other than the license grant. We recognized the $1.5 million upfront fee as revenue upon delivery of the license grant, which was completed in the three months ended June 30, 2015.

In accordance with ASU No. 2010-17, Milestone Method of Revenue Recognition, we determined that the remaining contingent payments under the license agreement do not constitute milestone payments and we will not account for such payments under the milestone method of revenue recognition. The events leading to these payments under the license agreement do not meet the definition of a milestone under ASU 2010-17 because the achievement of these events solely depends on bluebird’s performance. Since we have no remaining performance obligations under the license agreement, we would recognize the contingent payment as revenue in full upon the triggering event.

The license agreement will expire upon the fulfillment of all payment obligations under the license agreement. In addition, bluebird may terminate the license agreement in its entirety without cause at any time with advance written notice and either party may terminate the license agreement in its entirety with written notice for the other party’s material breach if such party fails to cure the breach or immediately upon certain insolvency events.

 

6.

Employee Benefit Plans

 

We sponsor a 401(k) plan under which eligible employees may elect to contribute to the 401(k) plan, subject to certain limitations, up to the lesser of the statutory maximum or 100% of eligible compensation on a pre-tax basis. We pay the administrative costs for the plan.

 

Effective January 1, 2015, we elected to match employee contributions to the 401(k) plan, or the Company Match, as permitted by the plan. We plan to make matching contributions on June 15 and December 15 each year in an amount equal to 50% of the amount contributed by the employee up to an annual maximum Company Match per employee equal to the lesser of (i) 4% of such employee’s compensation; or (ii) $6,000. We deliver the Company Match through the issuance of shares of our common stock. We delivered 13,720 shares of our common stock as the Company Match on June 15, 2015 and recorded 401(k) plan Company Match expense of $157,000 and $336,000 for the three and six months ended June 30, 2015.

 

7.

Subsequent Event

 

In July 2015, we entered into a research collaboration and license agreement with INBRX 110 LP, or Inhibrx, to obtain (a) an exclusive, worldwide license to antibodies to glucocorticoid-induced tumor necrosis factor receptor, or GITR, for therapeutic and diagnostic uses, which we refer to respectively as licensed therapeutic products and  licensed diagnostic products, and (b) an exclusive option, or the option, to obtain exclusive, worldwide licenses to multi-specific antibodies developed by Inhibrx that bind to both GITR and other targets, each of which we refer to as a multi-specific product.  We can exercise an option with respect to a multi-specific product within a limited period of time after (i) certain activities related to initiating clinical manufacturing of such multi-specific product or (ii) if not earlier exercised, the dosing of the first patient in a Phase 2 clinical trial of such multi-specific product.

 

Pursuant to the collaboration agreement, we paid Inhibrx an upfront fee of $10.0 million. Additionally, with respect to each licensed therapeutic product, we will be obligated to pay up to $62.5 million in specified development milestone payments and (i) if such licensed therapeutic product does not receive a Breakthrough Therapy Designation from the U.S. Food and Drug Administration, or FDA, up to $280.0 million in specified regulatory and commercial milestone payments, or (ii) if such licensed therapeutic product receives a Breakthrough Therapy Designation from the FDA, up to $380.0 million in specified regulatory and commercial milestone payments. Inhibrx is also eligible for low double-digit tiered royalties on future product sales. We may pay all or a portion of milestone payments for development and regulatory events in shares of our common stock, subject to certain limitations and conditions. We would be obligated to register for resale under the Securities Act of 1933, as amended, or the Securities Act, any such shares of our common stock.

 

 

12


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, 2014, included in our Annual Report on Form 10-K, as filed with the U.S. Securities and Exchange Commission (SEC) on March 18, 2015.

Overview

 

We are a clinical-stage biotechnology company focused on discovering and developing novel protein therapeutics to improve the lives of patients with serious diseases. We currently have three product candidates in clinical development covering multiple potential indications. Each of our product candidates has an innovative mechanism of action and addresses patient populations for which better therapies are still needed. In addition, we are pursuing companion diagnostics, where appropriate, for each of our clinical programs to allow us to select patients most likely to benefit from treatment and therefore accelerate clinical development and improve patient care. Our most advanced product candidates are identified below.

 

·

FPA008 is an antibody that inhibits colony stimulating factor-1, or CSF1, receptor, or CSF1R, that we are developing in rheumatoid arthritis and pigmented villonodular synovitis, or PVNS, and plan to study in clinical trials in multiple cancers in combination with Bristol-Myers Squibb Company’s, Opdivo® (nivolumab).

 

·

FPA144 is an antibody that inhibits fibroblast growth factor receptor 2b, or FGFR2b, that we are developing to treat patients with gastric (stomach) cancer.

 

·

FP-1039/GSK3052230 is a fusion protein that “traps” and neutralizes cancer-promoting fibroblast growth factors, or FGFs, involved in cancer cell survival and proliferation and new blood vessel formation that our partner, GlaxoSmithKline, or GSK, is developing to treat patients with squamous non-small cell lung cancer, or NSCLC, and malignant pleural mesothelioma.

We have a differentiated target discovery platform and library, which we believe encompasses substantially all of the body’s medically important targets for protein therapeutics. This positions us to explore pathways in cancer and inflammation and their intersection in immuno-oncology, an area of oncology with significant therapeutic potential and a growing focus of our research and development activities.  We are applying all aspects of our biologics discovery platform, including cell-based screening, in vivo screening, receptor-ligand matching technologies and bioinformatics, in our immuno-oncology research program. We have identified novel targets that we believe could be useful in immuno-oncology and are actively validating these and looking for additional targets. We have begun and will continue to generate therapeutic proteins, including antibodies or ligand traps, directed to the targets we identify and advance selected candidates into pre-clinical development and eventually into clinical development, with a goal of filing one new Investigational New Drug, or IND, application per year beginning in 2017.

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 have incurred losses in each period since our inception in 2002, with the exception of the fiscal year ended 2011, primarily due to the $50.0 million upfront payment we received from GSK from our license and collaboration agreement for FP-1039. For the six months ended June 30, 2015 and 2014, we reported a net loss of $22.5 million and $18.5 million, respectively. As of June 30, 2015, we had an accumulated deficit of $211.5 million.

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 GAAP for interim periods and with Regulation S-X promulgated under the Securities and Exchange Act of 1934, as amended, or the Exchange Act.

Second Quarter 2015 and Other Recent Highlights

 

Research Collaboration and License Agreement

 

In July 2015, we entered into a research collaboration and license agreement with INBRX 110 LP, or Inhibrx, pursuant to which we obtained an exclusive, worldwide license to Inhibrx’s glucocorticoid-induced tumor necrosis factor receptor, or GITR, antibodies, which we refer to now as our FPA154 program. Our FPA154 antibody program is currently at lead selection stage.

 

13


Clinical Pipeline

The following table summarizes key information about our three most advanced product candidates:

FPA008

FPA008 in Immuno-Oncology

 

We have obtained IND clearance for our Phase 1a/1b trial with BMS to evaluate the safety, tolerability and preliminary efficacy of combining Opdivo® (nivolumab), BMS’s PD-1 immune checkpoint inhibitor, with FPA008 as a potential treatment for patients with non-small cell lung cancer, or NSCLC, melanoma, head and neck cancer, pancreatic cancer, colorectal cancer and malignant glioma. We expect to commence enrollment in this trial in August 2015 and expect to complete Phase 1a dose escalation and expand into Phase 1b with the selected dose of FPA008 in late 2015 or early 2016.

FPA008 in Pigmented Villonodular Synovitis (PVNS)

We are conducting a Phase 1/2 clinical trial of FPA008 in patients with PVNS. During the Phase 1 dose escalation part of the trial, we will assess the safety, pharmacodynamics and imaging of the joints to determine the dose for expansion. During the Phase 2 expansion, we will evaluate tumor response rate and duration, and measures of pain and joint function. We plan to complete the Phase 1 dose escalation part of this trial and move into the Phase 2 dose expansion part by the end of 2015 or early 2016.

FPA008 in Rheumatoid Arthritis (RA)

 

We are conducting an open-label safety and dose escalation component of a Phase 1 trial of FPA008 in patients with active RA. We plan to present preliminary data from this RA component of the Phase 1 trial by the end of 2015.

 

FPA144

 

We are conducting a Phase 1a/1b clinical trial of FPA144 in solid tumor and gastric cancer patients. By the end of 2015, we expect to complete the dose escalation portion of the trial and begin expansion in selected gastric cancer patients with FGFR2b protein overexpression or FGFR2 gene amplification in their tumors as identified by molecular diagnostic assays.  We anticipate reporting preliminary data from the dose escalation portion of the trial by the end of 2015 or early 2016.

 

14


FP-1039

 

GSK is conducting a Phase 1b clinical trial of FP-1039 combined with standard doses of chemotherapy in patients with newly-diagnosed or recurrent squamous non-small cell lung cancer and malignant pleural mesothelioma.  We expect GSK to present preliminary safety and efficacy data from this trial at the World Conference on Lung Cancer in September 2015.

 

Preclinical Pipeline

 

We are applying all aspects of our biologics discovery platform to discover and validate targets that we believe could be useful in immuno-oncology and to generate therapeutic proteins, including antibodies and ligand traps, directed to these targets.  We have several ongoing antibody discovery campaigns and expect to initiate additional antibody and ligand trap campaigns as we continue to validate additional targets.  We plan to advance select candidates into pre-clinical development and eventually clinical development.

 

Using our biologics discovery platform, we identified GITR as one of the most effective tumor suppressors among hundreds of targets that regulate immune response to tumors.  GITR is selectively expressed on effector and regulatory T cells and agonist antibodies to GITR can induce tumor regressions, particularly in combination therapy.  We identified Inhibrx as having unique multivalent antibody scaffolds designed to multimerize and activate GITR receptors to a high degree without any Fc receptor binding, which we believe will achieve greater agonist activity with a higher therapeutic index and less variability among patients than antibodies currently under development.  In July 2015, we entered into a research collaboration and license agreement with Inhibrx under which we obtained an exclusive, worldwide license to Inhibrx’s GITR antibodies, which we refer to now as our FPA154 program.  Our FPA154 antibody program is currently at lead selection stage.

 

We plan to file at least one new IND application per year from our research programs beginning in 2017.

Financial Overview

Collaboration and License Revenue

We have not generated any revenue from product sales. We have derived our revenue to date from upfront payments, research and development funding and milestone payments under collaboration and license agreements with our collaboration partners and licensees.  We currently have a respiratory diseases research collaboration and an FP-1039 license agreement with GSK, a fibrosis and CNS research collaboration with UCB Pharma S.A., or UCB, and an immuno-oncology collaboration and an FPA008 clinical collaboration with Bristol-Myers Squibb Company, or BMS, under which we are performing obligations and a license agreement with bluebird bio. In 2014, we also were performing obligations under a muscle diseases research collaboration with GSK under which we received funding and recognized revenue.

Summary Revenue by Collaboration and License Agreements

The following is a comparison of collaboration and license revenue for the three and six months ended June 30, 2015 and 2014:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

June 30,

 

 

June 30,

 

 

(in millions)

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

R&D Funding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Respiratory Diseases Collaboration

 

$

1.2

 

 

$

1.0

 

 

$

2.1

 

 

$

1.7

 

 

Muscle Diseases Collaboration

 

 

 

 

 

0.3

 

 

 

 

 

 

0.8

 

 

Fibrosis and CNS Collaboration

 

 

0.3

 

 

 

0.1

 

 

 

0.4

 

 

 

0.1

 

 

Immuno-oncology Research Collaboration

 

 

0.7

 

 

 

0.8

 

 

 

1.4

 

 

 

0.8

 

 

Immuno-oncology Clinical Collaboration

 

 

0.2

 

 

 

 

 

 

0.2

 

 

 

 

 

Other

 

 

 

 

 

 

 

 

 

 

 

0.1

 

 

Ratable Revenue Recognition

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Respiratory Diseases Collaboration

 

 

0.6

 

 

 

0.6

 

 

 

1.3

 

 

 

1.3

 

 

Muscle Diseases Collaboration

 

 

 

 

 

0.3

 

 

 

 

 

 

0.9

 

 

Fibrosis and CNS Collaboration

 

 

0.7

 

 

 

0.8

 

 

 

1.5

 

 

 

1.4

 

 

Immuno-oncology Research Collaboration

 

 

1.1

 

 

 

1.1

 

 

 

2.2

 

 

 

1.3

 

 

Milestone and Contingent Payments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Muscle Diseases Collaboration

 

 

 

 

 

 

 

 

 

 

 

0.1

 

 

Other License Revenue

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

bluebird bio License Agreement

 

 

1.5

 

 

 

 

 

 

1.5

 

 

 

 

 

Total

 

$

6.3

 

 

$

5.0

 

 

$

10.6

 

 

$

8.5

 

 

 

15


We expect that any revenue we generate will fluctuate from period to period as a result of the timing and amount of milestones and other payments from our existing collaborations and licenses or any new collaborations and licenses we may enter into.

Research and Development

Research and development expenses consist of costs we incur in performing internal and collaborative research and development activities. Expenses incurred related to collaborative research and development agreements approximate the revenue recognized under these agreements. Research and development costs consist of salaries and benefits, including associated stock-based compensation, lab supplies and facility costs, as well as fees paid to other entities that conduct certain research and development activities, including manufacturing, on our behalf.

We are conducting research and development activities on several oncology and inflammatory disease targets and products.

We have a research and development team that designs, manages and evaluates the results of all of our research and development activities. We conduct nearly all of the core target discovery and early research and preclinical activities internally and rely on third parties, such as clinical research organizations, or CROs, and clinical manufacturing organizations, or CMOs, for the execution of certain of our research and development activities, such as toxicology studies, drug substance and drug product manufacturing and the conduct of clinical trials. We account for research and development costs on a program-by-program basis. In the early phases of research and discovery, our costs are often related to improving our discovery platform or preliminary screening activities and are not necessarily allocable to a specific program. We assign costs for such activities to a distinct non-program related project code. We allocate research and development management, overhead, common usage laboratory supplies and facility costs on a full-time equivalent basis.

The following is a comparison of research and development expenses for the three and six months ended June 30, 2015 and 2014:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

 

June 30,

 

 

June 30,

 

 

(in millions)

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

Development programs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FPA008

 

$

4.3

 

 

$

1.6

 

 

$

7.4

 

 

$

3.8

 

 

FPA144

 

 

1.3

 

 

 

5.1

 

 

 

2.5

 

 

 

6.7

 

 

FP-1039

 

 

0.1

 

 

 

0.2

 

 

 

0.1

 

 

 

0.3

 

 

Subtotal pipeline

 

 

5.7

 

 

 

6.9

 

 

 

10.0

 

 

 

10.8

 

 

Preclinical programs

 

 

1.3

 

 

 

 

 

 

1.3

 

 

 

0.3

 

 

Early research and discovery

 

 

2.6

 

 

 

1.7

 

 

 

5.6

 

 

 

3.7

 

 

Discovery collaborations

 

 

3.7

 

 

 

3.3

 

 

 

7.6

 

 

 

6.0