Alder Biopharmaceuticals
ALDER BIOPHARMACEUTICALS INC (Form: 10-Q, Received: 08/05/2015 16:29:00)

 

 

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

For the transition period from              to             

Commission File Number: 001-36431

 

Alder BioPharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

90-0134860

(State or other jurisdiction

of incorporation or organization)

 

(I.R.S. Employer

Identification No.)

11804 North Creek Parkway South

Bothell, WA 98011

(Address of principal executive offices including zip code)

Registrant’s telephone number, including area code: (425) 205-2900

 

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.

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

x  (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 Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

As of July 31, 2015 the registrant had 43,510,641 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


 

Alder BioPharmaceuticals, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended June 30, 2015

INDEX

 

 

Page

 

PART I. FINANCIAL INFORMATION (Unaudited)

 

 

Item 1.

 

 

Condensed Consolidated Financial Statements

3

 

 

 

Condensed Consolidated Balance Sheets

3

 

 

 

Condensed Consolidated Statements of Operations

4

 

 

 

Condensed Consolidated Statements of Comprehensive Loss

5

 

 

 

Condensed Consolidated Statements of Cash Flows

6

 

 

 

Notes to Condensed Consolidated Financial Statements

7

 

Item 2.

 

 

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

12

 

Item 3.

 

 

Quantitative and Qualitative Disclosures About Market Risk

19

 

Item 4.

 

 

Controls and Procedures

20

 

PART II. OTHER  INFORMATION

 

 

Item 1.

 

 

Legal Proceedings

21

 

Item 1A.

 

 

Risk Factors

21

 

Item 2.

 

 

Unregistered Sales of Equity Securities and Use of Proceeds

46

 

Item 6.

 

 

Exhibits

47

 

SIGNATURES

48

In this Quarterly Report on Form 10-Q, “we,” “our,” “us,” “Alder,” and “the Company” refer to Alder BioPharmaceuticals, Inc. and, where appropriate, its consolidated subsidiaries. “Alder” and the Alder logo are the property of Alder BioPharmaceuticals, Inc. This report contains references to our trademarks and to trademarks belonging to other entities. Solely for convenience, trademarks and trade names referred to in this report may appear without the ® or ™ symbols, but such references are not intended to indicate, in any way, that their respective owners will not assert, to the fullest extent under applicable law, their rights thereto. We do not intend our use or display of other companies’ trade names or trademarks to imply a relationship with, or endorsement or sponsorship of us by, any other companies

 

 

.

2


 

P ART I. – FINANCIAL INFORMATION

 

I tem 1.

Condensed Consolidated Financial Statements

Alder BioPharmaceuticals, Inc.

Condensed Consolidated Balance Sheets

(unaudited)

 

 

June 30,

 

 

December 31,

 

 

2015

 

 

2014

 

 

(in thousands, except share and per share data)

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

407,966

 

 

$

46,795

 

Short-term investments

 

20,447

 

 

 

9,077

 

Accounts receivable

 

 

 

 

113

 

Prepaid expenses and other assets

 

13,652

 

 

 

4,758

 

Total current assets

 

442,065

 

 

 

60,743

 

Other assets

 

12

 

 

 

2,456

 

Property and equipment, net

 

1,419

 

 

 

1,160

 

Total assets

$

443,496

 

 

$

64,359

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

$

2,354

 

 

$

1,911

 

Accrued liabilities

 

4,211

 

 

 

2,963

 

Deferred rent

 

149

 

 

 

135

 

Total current liabilities

 

6,714

 

 

 

5,009

 

Deferred rent

 

112

 

 

 

193

 

Total liabilities

 

6,826

 

 

 

5,202

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Common stock; $0.0001 par value; 200,000,000 shares authorized;

    43,502,186 and 30,996,526 shares issued and outstanding, respectively

 

4

 

 

 

3

 

Additional paid-in capital

 

605,920

 

 

 

196,082

 

Accumulated deficit

 

(169,214

)

 

 

(136,906

)

Accumulated other comprehensive loss

 

(40

)

 

 

(22

)

Total stockholders’ equity

 

436,670

 

 

 

59,157

 

Total liabilities and stockholders’ equity

$

443,496

 

 

$

64,359

 

 

 

 

 

 

 

 

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

 

 

 

3


 

Alder BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Operations

(unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

(in thousands, except share and per share data)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration and license agreements

$

 

 

$

4,703

 

 

$

 

 

$

9,485

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

14,088

 

 

 

9,377

 

 

 

25,123

 

 

 

16,397

 

General and administrative

 

3,930

 

 

 

2,736

 

 

 

7,607

 

 

 

5,896

 

Total operating expenses

 

18,018

 

 

 

12,113

 

 

 

32,730

 

 

 

22,293

 

Loss from operations

 

(18,018

)

 

 

(7,410

)

 

 

(32,730

)

 

 

(12,808

)

Other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

74

 

 

 

9

 

 

 

133

 

 

 

12

 

Foreign currency gain

 

289

 

 

 

 

 

 

289

 

 

 

 

Total other income

 

363

 

 

 

9

 

 

 

422

 

 

 

12

 

Net loss

$

(17,655

)

 

$

(7,401

)

 

$

(32,308

)

 

$

(12,796

)

Net loss per share - basic and diluted

$

(0.46

)

 

$

(0.40

)

 

$

(0.86

)

 

$

(1.30

)

Weighted average number of common shares used in net loss per share - basic and diluted

 

38,162,226

 

 

 

18,556,561

 

 

 

37,536,331

 

 

 

9,827,883

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

4


 

Alder BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Comprehensive Loss

(unaudited)

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

(in thousands)

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(17,655

)

 

$

(7,401

)

 

$

(32,308

)

 

$

(12,796

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized gain (loss) on securities available-for-sale, net of tax

 

10

 

 

 

(30

)

 

 

10

 

 

 

(30

)

Foreign currency translation income (loss), net of tax

 

(14

)

 

 

4

 

 

 

(28

)

 

 

11

 

Total other comprehensive loss

 

(4

)

 

 

(26

)

 

 

(18

)

 

 

(19

)

Comprehensive loss

$

(17,659

)

 

$

(7,427

)

 

$

(32,326

)

 

$

(12,815

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

5


 

Alder BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

Six Months Ended

 

 

June 30,

 

 

2015

 

 

2014

 

 

(in thousands)

 

Operating activities

 

 

 

 

 

 

 

Net loss

$

(32,308

)

 

$

(12,796

)

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

 

 

 

 

 

 

 

Depreciation and amortization

 

385

 

 

 

355

 

Loss on retirement of property and equipment

 

2

 

 

 

 

Stock-based compensation

 

2,306

 

 

 

388

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

Accounts receivable

 

113

 

 

 

259

 

Prepaid expenses and other assets

 

(6,486

)

 

 

(2,155

)

Accounts payable

 

443

 

 

 

448

 

Accrued liabilities

 

1,129

 

 

 

(551

)

Deferred rent

 

(67

)

 

 

179

 

Deferred revenue

 

 

 

 

(9,298

)

Net cash used in operating activities

 

(34,483

)

 

 

(23,171

)

Investing activities

 

 

 

 

 

 

 

Purchases of investments

 

(19,750

)

 

 

(10,045

)

Proceeds from maturities of investments

 

8,140

 

 

 

 

Proceeds from sales of investments

 

250

 

 

 

 

Purchases of property and equipment

 

(646

)

 

 

(312

)

Net cash used in investing activities

 

(12,006

)

 

 

(10,357

)

Financing activities

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of offering costs

 

406,824

 

 

 

80,511

 

Deferred offering costs

 

36

 

 

 

 

Proceeds from exercise of stock options and employee stock purchase plan

 

828

 

 

 

36

 

Net cash provided by financing activities

 

407,688

 

 

 

80,547

 

Effect of exchange rate changes on cash

 

(28

)

 

 

11

 

Net increase in cash and cash equivalents

 

361,171

 

 

 

47,030

 

Cash and cash equivalents

 

 

 

 

 

 

 

Beginning of period

 

46,795

 

 

 

23,227

 

End of period

$

407,966

 

 

$

70,257

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

 

Offering costs included in accounts payable and accrued liabilities

$

119

 

 

$

252

 

 

 

 

 

 

 

 

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

 

 

 

6


 

Alder BioPharmaceuticals, Inc.

Notes to Condensed Consolidated Financial Statements

 

1 .

Nature of Business

 

Alder BioPharmaceuticals, Inc. (the “Company”) is a clinical-stage biopharmaceutical company that discovers, develops and seeks to commercialize therapeutic antibodies with the potential to meaningfully transform current treatment paradigms. The Company has developed a proprietary antibody platform designed to select and manufacture antibodies that have the potential to maximize efficacy as well as speed of onset and durability of therapeutic response. The Company’s pipeline includes three internally discovered humanized monoclonal antibodies, as well as preclinical programs targeting additional indications that are in the discovery phase.  The Company was incorporated in Delaware on May 20, 2002 and is located in Bothell, Washington.

Reverse Stock Split

On April 9, 2014, the Company filed a Certificate of Amendment to its Amended and Restated Certificate of Incorporation to effect a 1-for-5.5 reverse stock split of its outstanding common stock and convertible preferred stock. The par value per share and the authorized number of shares of common stock and preferred stock were not adjusted as a result of the reverse stock split. All issued and outstanding shares of common stock and preferred stock, options to purchase common stock and related per share amounts contained in the condensed consolidated financial statements have been retroactively adjusted to reflect the reverse stock split for all periods presented.

Initial Public Offering and 2015 Stock Offerings

In May 2014, the Company completed an initial public offering (“IPO”) of its common stock. In connection with its IPO, the Company issued and sold 8,875,396 shares of its common stock, which included 875,396 shares the Company issued pursuant to the underwriters’ partial exercise of their over-allotment option, at a price to the public of $10.00 per share. The Company’s shares of common stock began trading on the NASDAQ Global Market on May 8, 2014. As a result of the IPO, the Company received approximately $80.3 million in net proceeds, after deducting underwriting discounts and commissions of $6.2 million and offering expenses of $2.2 million. At the closing of the IPO, 20,914,137 shares of outstanding convertible preferred stock were automatically converted into 20,914,137 shares of common stock. Following the IPO, there were no shares of preferred stock outstanding.

In January 2015, the Company completed an underwritten public offering of 6,900,000 shares of common stock, which included 900,000 shares the Company issued pursuant to the underwriters’ exercise of their option to purchase additional shares, at a price to the public of $29.50 per share.  The Company received approximately $190.7 million in net proceeds, after deducting underwriting discounts and commissions of $12.2 million and offering expenses of $0.6 million.

In June 2015, the Company completed an underwritten public offering of 5,168,539 shares of common stock, which included 674,157 shares the Company issued pursuant to the underwriters’ exercise of their option to purchase additional shares, at a price to the public of $44.50 per share.  The Company received approximately $216.0 million in net proceeds, after deducting underwriting discounts and commissions of $13.8 million and offering expenses of $0.2 million.

 

 

 

2.

Summary of Significant Accounting Policies

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements reflect the accounts of Alder BioPharmaceuticals, Inc. and its wholly-owned subsidiaries. All inter-company balances and transactions have been eliminated in consolidation. The condensed consolidated balance sheet data as of December 31, 2014 were derived from audited financial statements. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and generally accepted accounting principles in the United States of America (“GAAP”) for unaudited condensed consolidated financial information. Accordingly, they do not include all of the information and notes required by GAAP for complete financial statements. The accompanying unaudited condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the Company’s financial position and results of its operations, as of and for the periods presented. The Company manages its business as one operating segment; however, the Company operates in two geographic regions: United States (Bothell, WA) and Australia. Substantially all of the Company’s assets are located in, and revenues are generated in, the United States.

7


 

These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and accompanying notes included in the Company’s Annual Rep ort on Form 10-K for the year ended December 31, 2014.

Use of Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The results of the Company’s operations for the three and six months ended June 30, 2015 are not necessarily indicative of the results to be expected for the full year or for any other period.

Concentrations of Credit Risk and Major Collaborators

The Company is exposed to credit risk from its deposits of cash and cash equivalents and investments in excess of amounts insured by the Federal Deposit Insurance Corporation.

One of the Company’s collaborators accounted for nearly 100% of total revenues for the three and six months ended June 30, 2014. This collaborator accounted for 100% of total accounts receivable as of December 31, 2014.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. This ASU stipulates that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. This ASU is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early adoption is not permitted, however, entities are allowed to apply the new revenue standard for annual reporting periods beginning after the original effective date of December 15, 2016, and retrospective application is required. The Company is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12, Compensation – Stock Compensation.  This ASU requires entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition.  The ASU will become effective for annual reporting periods beginning after December 15, 2015. The Company is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern.  This ASU requires entities to evaluate for each annual and interim reporting period, whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued when applicable).  The ASU will become effective for annual reporting periods beginning after December 15, 2016. The Company is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements.

As an “emerging growth company,” the Jumpstart our Business Startups Act, or the JOBS Act, allows the Company to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. As a result, the Company’s financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies.  We will no longer be able to take advantage of this exemption beginning on December 31, 2015, when we will be deemed a large accelerated filer and, as a result, cease to be an “emerging growth company”.

  

 

8


 

3 .

Termination of License and Collaboration Agreement with Bristol-Myers Squibb

 

In November 2009, the Company entered into a license and collaboration agreement with Bristol-Myers Squibb, or BMS, for the development and commercialization of clazakizumab, an antibody product candidate for the treatment of rheumatoid arthritis, psoriatic arthritis and cancer. Under the terms of the agreement, the Company received a non-refundable upfront payment of $85 million and granted BMS worldwide exclusive rights to develop and commercialize clazakizumab for all indications other than cancer. On August 29, 2014, the Company received written notice that BMS elected to terminate the license and collaboration agreement effective as of December 29, 2014 (the “Termination Date”), at which time all rights to clazakizumab were returned to the Company.

 

In addition to the upfront payment of $85 million, the Company received an aggregate of $18.5 million in milestone payments from BMS and was reimbursed for clinical supply and development costs of $26.9 million. The Company recognized revenue relating to the deliverables in the agreement as a single unit of accounting using a time-based proportional performance model. The proportional performance model results in the recognition of the upfront license fee and other payments received under the arrangement over the estimated performance period based on the passage of time. As a result of the termination of the agreement, the estimated development period was adjusted to conclude as of the Termination Date, which was accounted for prospectively as a change in accounting estimate. In the three and six months ended June 30, 2014, the Company recognized revenue related to the BMS agreement in the amount of $4.8 million and $9.5 million, respectively.

 

BMS was responsible through June 29, 2015 for all costs of the clinical trials that were initiated prior to August 29, 2014. On the Termination Date, all rights granted to BMS with respect to clazakizumab terminated and reverted to the Company, and BMS granted to our wholly owned subsidiary, AlderBio Holdings LLC (“AlderBio”), an exclusive license, with the right to grant sublicenses, under certain BMS intellectual property solely to make, have made, use, import, export, offer for sale, and sell clazakizumab. BMS is obligated to transfer to the Company the Investigational New Drug Application that BMS filed for clazakizumab with the U.S. Food and Drug Administration and all material data related to clazakizumab that has not previously been transferred to the Company. The Company has the right to purchase all of BMS’ existing manufactured drug supply of clazakizumab at cost and, at the Company’s request, BMS is obligated to use diligent efforts to supply the Company with clazakizumab until the earlier of 20 months after December 29, 2014, or the date that the Company obtains an alternative source of supply.

 

The Company will be required to pay a low single-digit royalty to BMS on sales of clazakizumab unless the regulatory approval of clazakizumab is not based in whole or in part upon data from BMS’s Phase 2b clinical trial(s) in rheumatoid arthritis and psoriatic arthritis. Aside from those clinical trial expenses that BMS is obligated to pay after the Termination Date, the Company is responsible for performing and funding any new clazakizumab development and clinical trial activities, which could significantly delay or result in the discontinuation of the development of clazakizumab.

 

4 .

Net Loss Per Share

Basic net loss per share is calculated by dividing net loss by the weighted average common shares outstanding during the period, without consideration for common stock equivalents. Diluted net loss per share is calculated by adjusting the weighted average common shares outstanding for the dilutive effect of common stock equivalents outstanding for the period, determined using the treasury-stock method.

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net loss (in thousands)

$

(17,655

)

 

$

(7,401

)

 

$

(32,308

)

 

$

(12,796

)

Weighted-average common shares outstanding - basic and diluted

 

38,162,226

 

 

 

18,556,561

 

 

 

37,536,331

 

 

 

9,827,883

 

Net loss per share - basic and diluted

$

(0.46

)

 

$

(0.40

)

 

$

(0.86

)

 

$

(1.30

)

 

The following weighted average numbers of convertible preferred stock and outstanding stock options were excluded from the calculation of diluted net loss per share for the three and six months ended June 30, 2015 and 2014 because including them would have had an anti-dilutive effect. Therefore, basic and diluted net loss per share were the same for all periods presented. The convertible preferred stock numbers shown in the table are on a common stock equivalent basis.

 

 

Three Months Ended

 

 

Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Convertible preferred stock

 

 

 

 

8,503,550

 

 

 

 

 

 

14,674,560

 

Stock options

 

2,995,626

 

 

 

2,294,397

 

 

 

2,921,538

 

 

 

2,232,866

 

 

 

2,995,626

 

 

 

10,797,947

 

 

 

2,921,538

 

 

 

16,907,426

 

 

9


 

5 .

Investments

 

Investments consisted of available-for-sale securities as follows:

 

 

 

Amortized

 

 

Gross unrealized

 

 

Gross unrealized

 

 

Fair

 

 

 

Cost

 

 

gains

 

 

losses

 

 

Value

 

 

 

(in thousands)

 

Type of security as of June 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable certificates of deposit maturing in

   one year or less

 

$

20,445

 

 

$

2

 

 

$

 

 

$

20,447

 

Total available-for-sale securities

 

$

20,445

 

 

$

2

 

 

$

 

 

$

20,447

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Type of security as of December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable certificates of deposit maturing in

   one year or less

 

$

9,085

 

 

$

 

 

$

8

 

 

$

9,077

 

Total available-for-sale securities

 

$

9,085

 

 

$

 

 

$

8

 

 

$

9,077

 

 

Realized gains and losses are determined based on the specific identification method and are reported in other income in the condensed consolidated statement of operations.  There were no realized gains or losses on sales of available-for sale securities in the three or six months ended June 30, 2015 and 2014.

 

 

6 .

Fair Value Disclosures

The Company holds financial instruments that are measured at fair value which is determined according to a fair value hierarchy that prioritizes the inputs and assumptions used, and the valuation techniques used to measure fair value. The three levels of the fair value hierarchy are described as follows:

Level   1

Inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

Level   2

Inputs are quoted prices for similar assets and liabilities in active markets or quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level   3

Inputs are unobservable inputs based on the Company’s own assumptions and valuation techniques used to measure assets and liabilities at fair value. The inputs require significant management judgment or estimation.

The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

The Company established the fair value of its assets and liabilities using the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date and established a fair value hierarchy based on the inputs used to measure fair value.

 

10


 

The following table presents the Company’s financial instruments by level within the fair value hierarchy:

 

 

 

Fair Value Measurement Using

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

 

 

(in thousands)

 

As of June 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

402,843

 

 

$

 

 

$

 

 

$

402,843

 

Short term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable certificates of deposit

 

 

 

 

 

20,447

 

 

 

 

 

 

20,447

 

 

 

$

402,843

 

 

$

20,447

 

 

$

 

 

$

423,290

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

46,113

 

 

$

 

 

$

 

 

$

46,113

 

Short term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable certificates of deposit

 

 

 

 

 

9,077

 

 

 

 

 

 

9,077

 

 

 

$

46,113

 

 

$

9,077

 

 

$

 

 

$

55,190

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Company’s negotiable certificates of deposit are valued using fair value measurements that are considered to be Level 2.  The investment custodian provides the Company with valuations of its securities portfolio.  The primary source for the security valuation is Interactive Data Corporation (“IDC”), which evaluates securities based on market data.  IDC utilizes evaluated pricing models that vary by asset class and include available trade, bid, and other market information.  Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs. The custodian utilizes proprietary valuation matrices for valuing all negotiable certificates of deposit.  

 

Accounts receivable, accounts payable and accrued liabilities are carried at cost, which approximates fair value due to the short-term nature of these financial instruments.

 

 

 

 

 

 

11


 

 

 

Item 2.

  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

 

  

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This section should be read in conjunction with our unaudited condensed consolidated financial statements and related notes included in Part I, Item 1 of this report and our audited consolidated financial statements and related notes thereto and management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2014 included in our Annual Report on Form 10-K.

Forward-Looking Statements

This discussion contains certain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements are identified by words such as “believe,” “will,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” “predict,” “could,” “potentially” or the negative of these terms or similar expressions. You should read these statements carefully because they discuss future expectations, contain projections of future results of operations or financial condition, or state other “forward-looking” information. These statements relate to our future plans, objectives, expectations, intentions and financial performance and the assumptions that underlie these statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A — “Risk Factors,” and elsewhere in this report. Forward-looking statements are based on our management’s beliefs and assumptions and on information currently available to our management. These statements, like all statements in this report, speak only as of their date, and we undertake no obligation to update or revise these statements in light of future developments.

 

Overview

 

We are a clinical-stage biopharmaceutical company that discovers, develops and seeks to commercialize therapeutic antibodies with the potential to meaningfully transform current treatment paradigms. We have developed a proprietary antibody platform designed to select antibodies that have the potential to maximize efficacy as well as speed of onset and durability of therapeutic response. In addition, we believe our ability to efficiently manufacture antibodies using our yeast-based manufacturing technology, MabXpress, allows us to target diseases that traditionally have not been addressed by antibodies. ALD403 was discovered by Alder scientists, has achieved clinical proof-of-concept for high frequency migraine and we have initiated a Phase 2b dose-ranging trial for the preventative treatment of chronic migraines in preparation for progression to Phase 3 trials if supported by the data.

ALD403 is our novel monoclonal antibody targeted to calcitonin gene-related peptide, or CGRP, for migraine prevention. ALD403 has been evaluated in two completed clinical trials and three ongoing clinical trials. The table below summarizes the clinical trials completed to date or ongoing and the planned pivotal and Phase 2b trials.


12


 

 

 

Trial

 

Formulation

 

Stage of Development

 

Trial Population

 

Study

Locations

 

Subjects

 

Trial
Status

 

ALD403

Infusion

Phase 1

Healthy Subjects

Australia

104

Completed

 

 

 

 

 

 

 

ALD403

Infusion

Proof-of-Concept Trial

High Frequency Migraine

United States

163

Completed

 

 

 

 

 

 

 

ALD403

Infusion

Phase 2b

Chronic Migraine

Various

600

On-going

 

 

 

 

 

 

 

ALD403

Infusion

Pivotal

High Frequency Migraine

Various

600

Planned

 

 

 

 

 

 

 

ALD403

Infusion

Pivotal

Chronic Migraine

Various

450

Planned

 

 

 

 

 

 

 

ALD403

Self-administration

Phase 1

Healthy Subjects

Australia

60

On-going

 

 

 

 

 

 

 

ALD403

Self-administration

Phase 1

Healthy Subjects

Australia

60

On-going

 

 

 

 

 

 

 

ALD403

Self-administration

Phase 2b

High Frequency Migraine

TBD

240

Planned

 

 

We have completed a three month double-blind, randomized, placebo-controlled proof-of-concept trial of ALD403 in 163 patients suffering from five to 14 migraine days per month, or high frequency migraine. We have initiated a Phase 2b dose-ranging trial for the preventative treatment of chronic migraines with an intravenous formulation and a Phase 1 study in healthy volunteers investigating different dose levels of ALD403 or placebo formulated for once per quarter self-administration, which we expect to report top-line data from in the second half of 2015.  Early in the second half of 2015, we plan to initiate a pivotal, double-blind, placebo-controlled, randomized, dose-ranging clinical trial utilizing an intravenous (IV) formulation of ALD403 administered quarterly for the treatment of both chronic and high frequency migraine. Following the data from one of the ongoing Phase 1 studies, we plan to initiate a Phase 2b double-blind, placebo-controlled, randomized, multi-dose, dose-ranging clinical trial utilizing ALD403 formulated for self-administration aimed at quarterly dosing in high frequency migraine patients. This trial will commence in the second half of 2015 with top-line data anticipated in the second half of 2016.

 

Clazakizumab, also known as ALD518, is a novel monoclonal antibody that inhibits the pro-inflammatory cytokine interleukin-6, or IL-6, for the treatment of both rheumatoid arthritis, or RA, and psoriatic arthritis, or PsA. In November 2009, we entered into a license and collaboration agreement with BMS, under which we granted BMS worldwide exclusive rights to develop and commercialize clazakizumab for all indications other than cancer. On August 29, 2014, BMS notified us that it had elected to terminate the license and collaboration agreement effective as of December 29, 2014, or the Termination Date, at which time all rights to clazakizumab were returned to us. Under the terms of the agreement, BMS was responsible for the costs of ongoing clinical studies, including the Phase 2b dose-ranging trial, until June 29, 2015. We are seeking a partner or other strategic alternatives for clazakizumab.

 

ALD1613 is a genetically engineered monoclonal antibody developed by us that is designed to specifically inhibit Adrenocorticotropic Hormone, or ACTH, for the treatment of Cushing’s Disease. This disease is driven by long-term exposure to cortisol as a result of increased expression of ACTH produced by a pituitary tumor. We believe a novel, mechanism-based approach to address Cushing’s Disease using a monoclonal antibody targeted to ACTH that diminishes the overproduction of cortisol with a sound safety profile would provide a significant advantage over the current standard of care and provide an important new therapeutic option to both patients and physicians. ALD1613 is currently at a preclinical stage of development.

 

We are continuing to evaluate other disease indications where therapeutic antibodies have not previously played a role. We will continue to enhance our technologies to discover optimized product candidates that can be manufactured efficiently on a very large scale. We may seek to monetize our technology platform by consummating partnerships with leading biotechnology and pharmaceutical companies. We also intend to continue to deploy capital to selectively develop our own portfolio of product candidates.

 

13


 

We were incorporated in 2002 and have not generated any product revenue. Through June 30 , 2015 , our operations have been primarily funded by $487.0 million of net proceeds in public offerings, $111.4 million in private placeme nts of o ur convertible preferred stock and $135.0 million in upfront payments, milestones and research and development payments from our collaborators and government grants.

 

As of June 30, 2015, we had an accumulated deficit of $169.2 million. We expect to experience increasing operating losses for the foreseeable future. We expect our expenses will increase substantially in connection with our ongoing activities, as we:

 

conduct clinical trials of ALD403;

continue to evaluate our preclinical programs and advance at least one additional product candidate into the clinic;

enhance our proprietary antibody platform and conduct discovery and preclinical activities;

manufacture antibodies for our preclinical programs and clinical trials;

seek regulatory approval for our product candidates; and

operate as a public company.

 

We will not generate revenues from product sales unless and until we or our future collaborators successfully complete development and obtain regulatory approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. If we obtain regulatory approval for ALD403 or any future product candidate, we expect to incur significant commercialization expenses related to sales, marketing, manufacturing and distribution to the extent that such costs are not paid by future collaborators. We will need to obtain substantial additional sources of funding to develop ALD403 as currently contemplated. If such additional funding is not available on favorable terms or at all, we may need to delay or reduce the scope of our ALD403 development program or grant rights in the United States, as well as outside the United States, to ALD403 to one or more partners.

 

Financial Operations Overview

Revenues

We did not recognize any revenue in the three or six months ended June 30, 2015. We recognized $4.7 million and $9.5 million in revenue for the three and six months ended June 30, 2014, respectively, substantially all of which was derived from our collaboration with BMS, which was terminated effective December 29, 2014.  Upfront fees, milestone payments and reimbursed clinical supply and development costs received under our collaboration agreements are deferred and are recognized as revenues over the performance period using a time-based approach. As a result of the early termination of the BMS agreement, the estimated performance period was adjusted to reflect the December 29, 2014 termination date, which accelerated the recognition of revenue that had previously been deferred. We will not recognize any additional future revenue under the agreement with BMS.

 

We have not generated any revenues from the sale of products. In the future, we may generate revenues from product sales and from collaboration agreements in the form of license fees, milestone payments, reimbursements for clinical supply and development costs and royalties on product sales. We expect that any revenues we generate will fluctuate from quarter to quarter as a result of the uncertain timing and amount of such payments and sales.

Research and Development Expenses

Research and development expenses represent costs incurred by us for the discovery and development of our product candidates. The following items are included in research and development expenses:

·

external costs under agreements with clinical research organizations, or CROs, contract manufacturing organizations, or CMOs, and other significant third-party vendors or consultants used to perform preclinical, clinical and manufacturing activities;

·

internal costs including employee-related costs such as salaries, benefits, stock-based compensation expense, travel, laboratory consumables and services for our research and development personnel; and

·

allocated facilities, depreciation, and other expenses, which include rent and maintenance of facilities, information technology services and other infrastructure expenses.

14


 

We use our employee and infrastructure resources across multiple research and development p rograms directed toward evaluating our monoclonal antibodies for selecting product candidates. We manage certain activities such as preclinical toxicology studies, clinical trial operations and manufacture of product candidates through third-party CROs, CM Os or other third-party vendors. We track our significant external costs by each product candidate. We also track our human resource efforts on certain programs for purposes of billing our collaborators for time incurred at agreed upon rates. We do not, ho wever, assign or allocate to individual product candidates or development programs our internal costs and we group these internal research and development activities into three categories:

 

Category

  

Description

 

Preclinical discovery and development

  

 

Research and development expenses incurred in activities substantially in support of discovery of new targets through the selection of a single product candidate. These activities encompass the discovery and translational medicine functions, including pharmacokinetic and drug metabolism preclinical studies, toxicology and early strain and assay development activities.

 

Pharmaceutical operations

  

 

Research and development expenses incurred related to manufacturing preclinical study and clinical trial materials, including scale-up process development and quality control activities.

 

Clinical development

  

 

Research and development expenses incurred related to Phase 1, Phase 2 and Phase 3 clinical trials, including regulatory affairs activities.

 

We plan to increase our research and development expenses for the foreseeable future as we continue the development of ALD403 and evaluate the advancement of future product candidates into clinical development. The timing and amount of research and development expenses incurred will depend largely upon the outcomes of current and future clinical trials for our product candidates as well as the related regulatory requirements, manufacturing costs and any costs associated with the advancement of our preclinical programs. We cannot determine with certainty the duration and completion costs of the current or future clinical trials of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates will depend on a variety of factors, including:

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

future clinical trial results;

potential changes in government regulation; and

the timing and receipt of any regulatory approvals.

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related benefits, including stock-based compensation, related to our executive, business development, intellectual property, finance, human resources 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, tax and legal services, including intellectual property related legal services. We have incurred and expect to incur additional expenses as a result of operating as a public company, including expenses related to compliance with the rules and regulations of the SEC, and those of the NASDAQ Stock Market LLC, or NASDAQ, additional insurance expenses, investor relations activities and other administrative and professional services.

 

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2015 and 2014

Revenues

We did not recognize any revenue in the three and six months ended June 30, 2015. Revenues for the three and six months ended June 30, 2014 were $4.7 million and $9.5 million, respectively, and were derived primarily from our collaboration agreement with BMS, which was terminated effective December 29, 2014.  We will not recognize any additional future revenue under the BMS collaboration agreement.

15


 

Research and Development Expenses

Research and development expenses incurred in the three and six months ended June 30, 2015 and 2014 were as follows:

 

 

Three Months Ended

 

 

 

 

 

 

Six Months Ended

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

June 30,

 

 

 

 

 

 

2015

 

 

2014

 

 

% change

 

 

2015

 

 

2014

 

 

% change

 

 

(dollars in thousands)

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

External costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ALD403

$

6,259

 

 

$

4,291

 

 

 

46

%

 

$

11,195

 

 

$

6,399

 

 

 

75

%

ALD1613

 

1,629

 

 

 

 

 

 

 

 

 

2,056

 

 

 

 

 

 

 

Clazakizumab

 

57

 

 

 

528

 

 

 

(89

%)

 

 

78

 

 

 

995

 

 

 

(92

%)

Unallocated internal costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preclinical discovery and development

 

3,195

 

 

 

2,906

 

 

 

10

%

 

 

6,330

 

 

 

5,793

 

 

 

9

%

Pharmaceutical operations

 

2,313

 

 

 

1,280

 

 

 

81

%

 

 

4,262

 

 

 

2,464

 

 

 

73

%

Clinical development

 

635

 

 

 

372

 

 

 

71

%

 

 

1,202

 

 

 

746

 

 

 

61

%

Total research and development expenses

$

14,088

 

 

$

9,377

 

 

 

50

%

 

$

25,123

 

 

$

16,397

 

 

 

53

%

 

 

Research and development expenses increased by $4.7 million, or 50%, for the three months ended June 30, 2015 compared to the same period of 2014. During the three months ended June 30, 2015, external costs for ALD403 increased $2.0 million.  The increased level of spending was due to an additional $3.4 million in clinical trial costs incurred to advance our Phase 2 program for migraine, offset by a $1.4 million decrease in manufacturing costs.  External costs for ALD1613 included an additional $1.6 million for costs related to drug supply to advance our preclinical program for Cushing’s Disease.  Unallocated internal costs also increased by $1.6 million due to an increase in salaries expense and stock-based compensation in the 2015 period as a result of an increase in our research and development headcount to support our planned pivotal trials.

 

Research and development expenses increased by $8.7 million, or 53%, for the six months ended June 30, 2015 compared to the same period of 2014. During the six months ended June 30, 2015, external costs for ALD403 increased $4.8 million.  The increased level of spending was due to an additional $5.7 million in clinical trial costs incurred to advance our Phase 2 program for migraine, offset by a $1.1 million decrease in manufacturing costs.  External costs for ALD1613 included an additional $2.1 million for costs related to drug supply to advance our preclinical program for Cushing’s Disease.  Unallocated internal costs also increased by $2.8 million due to an increase in salaries expense and stock-based compensation in the 2015 period as a result of an increase in our research and development headcount to support our planned pivotal trials.

 

In August 2014, we regained the worldwide rights to clazakizumab from BMS.  BMS was responsible through June 29, 2015 for all costs of the clinical trials that were initiated by BMS prior to August 29, 2014.  We are seeking a partner or other strategic alternatives for clazakizumab.  

General and Administrative Expenses

General and administrative expenses increased by $1.2 million, or 44%, for the three months ended June 30, 2015 compared to the same period of 2014.  The increase was primarily due to increases in salaries and stock-based compensation and additional administrative costs and fees to operate as a public company.  

General and administrative expenses increased by $1.7 million, or 29%, for the six months ended June 30, 2015 compared to the same period of 2014.  The increase was primarily due to increases in salaries and stock-based compensation and additional administrative costs and fees to operate as a public company.  

Interest Income

The increases in interest income for the three and six months ended June 30, 2015 compared to the same periods of 2014 were due to  increases in the average balances of cash, cash equivalents and investments.  

Foreign Currency Gain

We recognized a net foreign currency gain of $0.3 million for the three months and six months ended June 30, 2015. We maintain a bank account denominated in British pounds for purposes of settling certain obligations arising outside the United States.

16


 

This gain primarily reflects the impact of an increase in the exchange rate for British pounds relative to U.S. dollars during the three months ended June 30, 2015.   We did not recognize a net foreign currency gain for the three and six months en ded June 30, 2014 because w e did not maintain such bank account in 2014.

Liquidity and Capital Resources

 

Due to our significant research and development expenditures, we have generated significant operating losses from inception and we expect to incur significant operating losses in the future. We have funded our operations primarily through sales of our equity securities and payments from our collaboration partners.  As of June 30, 2015, we had available cash, cash equivalents and investments of $428.4 million, which consisted of cash, money market funds and negotiable certificates of deposit. Cash in excess of immediate requirements is invested with a view toward liquidity and capital preservation, and we seek to minimize the potential effects of concentration and degrees of risk.

 

We are currently focusing our resources on development of ALD403 and on the preclinical development of ALD1613.  We may consider possible partnerships for our product candidates or sources of additional equity financing. We believe that our available cash, cash equivalents and investments will be sufficient to meet our projected operating requirements through 2017. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. Furthermore, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for product development and commercialization sooner than planned. We currently have no credit facility or committed sources of capital. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates and the extent to which we may enter into additional collaborations with third parties to participate in their development and commercialization, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated clinical trials. Our future funding requirements will depend on many factors, as we:

 

initiate or continue clinical trials of ALD403, our novel monoclonal antibody for prevention of migraine;

 

seek a partner or other strategic alternatives for clazakizumab;

 

continue the research and development of our product candidates;

 

seek to discover additional product candidates;

 

seek regulatory approvals for our product candidates that successfully complete clinical trials;

 

establish a sales, marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize products which receive regulatory approval;

 

enhance operational, financial and information management systems and hire additional personnel, including personnel to support development of our product candidates and, if a product candidate is approved, our commercialization efforts; and

 

incur additional costs associated with being a public company.

 

We plan to continue to fund our operations and capital funding needs through equity, debt financing and/or new collaborations. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations.

 

We may consider partnering one or more of our product candidates for further clinical development and commercialization. To the extent that we raise additional capital through marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our product candidates, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us. If we do need to raise additional capital to fund our operations, funding may not be available to us on acceptable terms, or at all. If we are not able to secure adequate additional funding we may be forced to make reductions in spending, extend payment terms with suppliers, liquidate assets where possible, and/or suspend or curtail planned programs. Any of these actions could harm our business, results of operations and future prospects.

 


17


 

Historical Cash Flow Trends

The following table summarizes our cash flows for the periods indicated:  

 

Six Months Ended

 

 

June 30,

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

$

(34,483

)

 

$

(23,171

)

Net cash used in investing activities

 

(12,006

)

 

 

(10,357

)

Net cash provided by financing activities

 

407,688

 

 

 

80,547

 

Net Cash Used in Operating Activities

Net cash used in operating activities in the six months ended June 30, 2015 and 2014 resulted primarily from our net losses adjusted for non-cash charges and changes in components of working capital. Net cash used in operating activities was $34.5 million during the six months ended June 30, 2015 compared to $23.2 million during the same period of 2014. The $11.3 million increase in net cash used in operating activities in the six months ended June 30, 2015 compared to the same period of 2014 was driven primarily by an increase in net loss of $19.3 million and an increase in prepaid manufacturing costs related to our ALD403 and ALD1613 programs under development of $4.3 million, offset by a decrease in deferred revenue of $9.3 million related to our former agreement with BMS, and by other net changes in components of working capital.

Net Cash Used in Investing Activities

Net cash used in investing activities was $12.0 million in the six months ended June 30, 2015 due primarily to purchases of investments, offset in part by sales and maturities of investments.  Net cash used in investing activities was $10.4 million in the six months ended June 30, 2014 due primarily to purchases of investments.  Purchases of property and equipment used cash of $0.6 million and $0.3 million in the six months ended June 30, 2015 and 2014, respectively.

Net Cash Provided by Financing Activities

Net cash provided by financing activities in the six months ended June 30, 2015 was $407.7 million due primarily to two underwritten public offerings of our common stock in which we received proceeds of $406.8 million net of underwriting discounts, commissions and offering costs.  Cash provided by financing activities in the six months ended June 30, 2014 was $80.5 million due primarily to our IPO.  As of June 30, 2015 and 2014, we incurred $0.1 million and $0.3 million, respectively, in offering costs which were included in accounts payable and accrued liabilities.  

 

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements in the six months ended June 30, 2015.

Contractual Obligations

 

Our contractual obligations as of June 30, 2015 were as follows:

 

 

 

 

 

 

 

Less Than

 

 

 

 

 

 

 

 

 

 

More Than

 

 

 

Total

 

 

1 Year

 

 

1-3 Years

 

 

3-5 Years

 

 

5 Years

 

 

 

(in thousands)

 

Operating lease obligations (1)

 

$

1,354

 

 

$

677

 

 

$

677

 

 

$

 

 

$

 

License agreements (2)

 

 

745

 

 

 

55

 

 

 

165

 

 

 

150

 

 

 

375

 

Purchase obligations (3)

 

 

6,593

 

 

 

6,593

 

 

 

 

 

 

 

 

 

 

Contract manufacturing obligations (4)

 

 

7,611

 

 

 

7,611

 

 

 

 

 

 

 

 

 

 

Total contractual obligations

 

$

16,303

 

 

$

14,936

 

 

$

842

 

 

$

150

 

 

$

375

 

 

(1)   Represents future minimum lease payments under our non-cancelable operating lease. The minimum lease payments above do not include any related common area maintenance charges or real estate taxes.

(2)   Some of our licensing agreements obligate us to pay a royalty on net sales of products utilizing licensed technology. Such royalties are dependent on future product sales and are not provided for in the table above as they are not estimable.

18


 

(3)   We enter into agreements in the normal course of business with contract research organizations for clinical trials and with vendors for preclinical research studies and other services and products for operating purposes which are cancelable at any time by us, generally upon 30 days prior written notice. These payments are not included in this table of contractual obligations.

(4)   Represents contractual obligations related to manufacturing our product candidates for use in our clinical trials, including long-term stability studies.

Critical Accounting Policies and Significant Judgments and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported revenues generated and expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no significant and material changes in our critical accounting policies during the three months ended June 30, 2015, as compared to those disclosed in “Management’s Discussion and Analysis of Financial Conditions and Results of Operations - Critical Accounting Policies and Significant Judgments and Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2014, as filed with the SEC. We believe that the accounting policies discussed in our Annual Report on Form 10-K are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

Newly Adopted Accounting Pronouncements

For a discussion of recently issued accounting pronouncements, please see Note 2 to our condensed consolidated financial statements, which are included in this report.  

JOBS Act

As an “emerging growth company,” the Jumpstart our Business Startups Act, or the JOBS Act, allows us to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective date for new or revised accounting standards that are applicable to public companies. We will no longer be able to take advantage of this exemption beginning on December 31, 2015, when we will be deemed a large accelerated filer and, as a result, cease to be an “emerging growth company.”

 

I tem 3.

Quantitative and Qualitative Disclosures about Market Risk

 

Interest Rate Risk

 

The primary objective of our investment activities is to preserve our capital to fund our operations. We also seek to maximize income from our investments without assuming significant risk. To achieve our objectives, we maintain a portfolio of cash equivalents and investments in a variety of securities of high credit quality. As of June 30, 2015, we had cash, cash equivalents and investments of $428.4 million consisting of cash, money market accounts and negotiable certificates of deposit in highly rated financial institutions in the United States. A portion of our investments may be subject to interest rate risk and could fall in value if market interest rates increase. However, because our investments are primarily short-term in duration, we believe that our exposure to interest rate risk is not significant and a 1% movement in market interest rates would not have a significant impact on the total value of our portfolio. We actively monitor changes in interest rates.

Foreign Currency Risk

 

We contract for the conduct of certain clinical development activities with vendors in Australia and we contract for the conduct of manufacturing activities in the United Kingdom. We are subject to exposure due to fluctuations in foreign exchange rates in connection with these agreements. We manage a portion of these cash flow exposures through the purchase of British pounds. Our holdings in British pounds are marked to market at the end of each period and any change is recorded as gains or losses in the consolidated statements of operations. As of June 30, 2015, we held the U.S. dollar equivalent of $4.5 million in British pounds. A hypothetical 10% change in the exchange rate between the U.S. dollar and the British pound from the June 30, 2015 rate would have

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increased/d ecreased our unrealized foreign currency loss on our holdings of British pounds by approximately $ 0.4 million. We generally transfer funds to our Australian subsidiary to fund operating needs within 30 days of disbursement. The cash balance held by our Aus tralian subsidiary is denominated in Australian dollars and is also subject to exposure due to fluctuations in exchange rates . For the three and six months ended June 30 , 2015 , we recorded a foreign currency gain of $0. 3 million in our consolidated statements of operations.  For the three and six months ended June 30, 2014, the effect of the exposure to fluctuations in foreign exchange rates was not material.

 

 

I tem 4.

Controls and Procedures

Evaluation of disclosure controls and procedures. Our management, with the participation of our Chief Executive Officer and our Senior Vice President, Finance, our principal financial officer, have evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) prior to the filing of this quarterly report. Based on that evaluation, our Chief Executive Officer and our Senior Vice President, Finance, have concluded that, as of the end of the period covered by this quarterly report, our disclosure controls and procedures were, in design and operation, effective.

Changes in internal control over financial reporting. There were no changes in our internal control over financial reporting during the quarter ended June 30, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent limitation on the effectiveness of internal control. The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable, not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but cannot assure you that such improvements will be sufficient to provide us with effective internal control over financial reporting.

 

 

 

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P ART II. – OTHER INFORMATION

 

 

I tem 1.

Legal Proceedings

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business. We are not presently a party to any legal proceedings that, if determined adversely to us, would individually or taken together have a material adverse effect on our business, operating results, financial condition or cash flows.

 

Item 1A.

Risk Factors

You should carefully consider the following risk factors, in addition to the other information contained in this report on Form 10-Q, including the section of this report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our financial statements and related notes. If any of the events described in the following risk factors and the risks described elsewhere in this report occurs, our business, operating results and financial condition could be seriously harmed. This report on Form 10-Q also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of factors that are described below and elsewhere in this report .

 

Risks Related to Our Business and the Development and Commercialization of Our Product Candidates

 

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

 

We are a clinical-stage biopharmaceutical company. We do not currently have any products approved for sale, and we continue to incur significant research and development and general and administrative expenses. We have incurred significant operating losses in the past and expect to incur substantial and increasing losses for the foreseeable future. For the six months ended June 30, 2015, our net loss was $32.3 million and as of June 30, 2015, we had an accumulated deficit of $169.2 million.

 

To date, we have devoted substantially all of our efforts to research and development, including clinical trials, but have not completed development or commercialized any product candidates. We anticipate that our expenses will increase substantially as we:

 

continue the research and development of our product candidates, including clinical trials of ALD403;

 

seek regulatory approvals for our product candidates that successfully complete clinical trials;

 

establish a sales, marketing and distribution infrastructure and scale-up manufacturing capabilities to commercialize ALD403 or any of our future product candidates if they receive regulatory approval; and

 

enhance operational, financial and information management systems and hire additional personnel, including personnel to support development of our product candidates and, if a product candidate is approved, our commercialization efforts.

 

To be profitable in the future, we and any of our future collaborators must succeed in developing and eventually commercializing products with significant market potential. This will require success in a range of activities, including advancing product candidates, completing clinical trials of product candidates, obtaining regulatory approval for these product candidates and manufacturing, marketing and selling those products for which regulatory approval is obtained. We are only in the preliminary stages of some of these activities. We and any of our future collaborators may not succeed in these activities and may never generate revenues that are sufficient to be profitable in the future.

 

Drug development is a highly speculative undertaking and involves a substantial degree of uncertainty. We have never generated any revenues from product sales and may never be profitable.

 

We have devoted substantially all of our financial resources and efforts to developing our technology platform, identifying product candidates and conducting preclinical studies and clinical trials for our product candidates. We are still in the early stages of developing our product candidates and have not completed the development of any products. We have never generated revenues from the sale of any products. Our ability to generate revenues and achieve profitability depends in large part on our ability, on our own or with any of our future collaborators, to successfully complete the development of, obtain the necessary regulatory approvals for, and commercialize our product candidates. We do not anticipate generating revenues from sales of products for the foreseeable future. Our ability to generate future revenues from product sales depends on our and any of our future collaborators’ success in:

 

completing clinical development and obtaining regulatory approval for ALD403;

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entering into collaboration agreements with third parties with respect to our product candidates for their development and commercialization in the United States or in international markets, and the continued financial and other support of these third parties under such collaboration agreements;

 

launching and commercializing ALD403, if approved, and successfully establishing sales, marketing and distribution infrastructure;

 

obtaining regulatory approvals for future product candidates that we discover and successfully develop;

 

establishing and maintaining supply and manufacturing relationships with third parties;

 

obtaining coverage and adequate reimbursement from third-party payors; and

 

maintaining, protecting, expanding and enforcing our intellectual property, including intellectual property we license from third parties.

 

Because of the numerous risks and uncertainties associated with biologic product development, we are unable to predict the timing or amount of increased expenses and when we will be able to achieve or maintain profitability, if ever. In addition, our expenses could increase beyond expectations if we are required by the U.S. Food and Drug Administration, or FDA, or foreign regulatory agencies, to perform studies and trials in addition to those that we currently anticipate, or if there are any delays in our or any of our future collaborators’ clinical trials or the development of any of our product candidates. If one or more of the product candidates that we independently develop is approved for commercial sale, we anticipate incurring significant costs associated with commercializing such product candidates.

 

The termination of our clazakizumab collaboration agreement with BMS means that any further development of clazakizumab will require significant alternative resources, and in the event that we do not find a collaborator or other strategic alternative, we expect the development of clazakizumab to be discontinued for the foreseeable future .

 

On August 29, 2014, BMS terminated our collaboration agreement for the development and commercialization of clazakizumab. The termination of this collaboration agreement became effective on December 29, 2014, and BMS is not responsible for funding any new clazakizumab development and clinical trial activities undertaken after June 29, 2015. Any such further development will require significant resources to develop and commercialize clazakizumab, and we do not believe that such further development is possible in the foreseeable future without a new collaborator or other strategic alternative.

 

We will need additional funds to support our operations, and such funding may not be available to us on acceptable terms, or at all, which would force us to delay, reduce or suspend our research and development programs and other operations or commercialization efforts.

 

We are focused on the advancement of ALD403 through the clinical development process, as well as the evaluation of future product candidates. The completion of the development and the potential commercialization of our product candidates, should they receive regulatory approval, will require substantial funds. We will need to obtain substantial additional sources of funding to develop ALD403 as currently contemplated. If such additional funding is not available on favorable terms or at all, we may need to delay or reduce the scope of our ALD403 development program or grant rights in the United States, as well as outside the United States, to ALD403 to one or more partners. As of June 30, 2015, we had $428.4 million in cash, cash equivalents and investments. We believe that our available cash, cash equivalents and investments will be sufficient to fund our anticipated level of operations, including our ALD403 development program, through 2017. However, our future financing requirements will depend on many factors, some of which are beyond our control, including the following:

 

the rate of progress, recruitment and cost of our clinical trials and clinical success for ALD403 and any future product candidates;

 

the timing of, and costs involved in, seeking and obtaining approvals from the FDA and other regulatory authorities;

 

the costs of commercialization activities if any of our product candidates, such as ALD403, receive regulatory approval, including sales, marketing and distribution infrastructure;

 

the degree and rate of market acceptance of any products launched by us or any of our future collaborators;

 

our ability to enter into additional collaboration, licensing, commercialization or other arrangements and the terms and timing of such arrangements; and

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the emergence of competing technologies or other adverse market developments.

 

We do not have any material committed external source of funds or other support for our development efforts. Until we can generate sufficient revenues to finance our cash requirements, which we may never do, we expect to finance future cash needs through a combination of public or private equity offering