Alder Biopharmaceuticals
ALDER BIOPHARMACEUTICALS INC (Form: 10-Q, Received: 11/05/2015 18:31:33)

 

 

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 September 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 October 30, 2015 the registrant had 43,611,531 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


 

Alder BioPharmaceuticals, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended September 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 Income (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

20

 

Item 4.

 

 

Controls and Procedures

20

 

PART II. OTHER  INFORMATION

 

 

Item 1.

 

 

Legal Proceedings

22

 

Item 1A.

 

 

Risk Factors

22

 

Item 2.

 

 

Unregistered Sales of Equity Securities and Use of Proceeds

47

 

Item 6.

 

 

Exhibits

48

 

SIGNATURES

49

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)

 

 

September 30,

 

 

December 31,

 

 

2015

 

 

2014

 

 

(in thousands, except share and per share data)

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

234,007

 

 

$

46,795

 

Short-term investments

 

72,176

 

 

 

9,077

 

Accounts receivable

 

 

 

 

113

 

Prepaid expenses and other assets

 

13,641

 

 

 

4,758

 

Total current assets

 

319,824

 

 

 

60,743

 

Long-term investments

 

102,009

 

 

 

 

Other assets

 

3,115

 

 

 

2,456

 

Property and equipment, net

 

1,309

 

 

 

1,160

 

Total assets

$

426,257

 

 

$

64,359

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

$

7,733

 

 

$

1,911

 

Accrued liabilities

 

6,629

 

 

 

2,963

 

Deferred rent

 

156

 

 

 

135

 

Total current liabilities

 

14,518

 

 

 

5,009

 

Deferred rent

 

72

 

 

 

193

 

Total liabilities

 

14,590

 

 

 

5,202

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

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

    43,603,086 and 30,996,526 shares issued and outstanding, respectively

 

4

 

 

 

3

 

Additional paid-in capital

 

607,834

 

 

 

196,082

 

Accumulated deficit

 

(196,211

)

 

 

(136,906

)

Accumulated other comprehensive income (loss)

 

40

 

 

 

(22

)

Total stockholders’ equity

 

411,667

 

 

 

59,157

 

Total liabilities and stockholders’ equity

$

426,257

 

 

$

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

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

(in thousands, except share and per share data)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Collaboration and license agreements

 

$

 

 

$

38,784

 

 

$

 

 

$

48,269

 

Operating expenses

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

22,852

 

 

 

7,047

 

 

 

47,975

 

 

 

23,444

 

General and administrative

 

 

4,318

 

 

 

3,158

 

 

 

11,925

 

 

 

9,054

 

Total operating expenses

 

 

27,170

 

 

 

10,205

 

 

 

59,900

 

 

 

32,498

 

Income (loss) from operations

 

 

(27,170

)

 

 

28,579

 

 

 

(59,900

)

 

 

15,771

 

Other income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

248

 

 

 

18

 

 

 

381

 

 

 

30

 

Foreign currency gain (loss)

 

 

(159

)

 

 

 

 

 

130

 

 

 

 

Other income

 

 

84

 

 

 

49

 

 

 

84

 

 

 

49

 

Total other income

 

 

173

 

 

 

67

 

 

 

595

 

 

 

79

 

Net income (loss)

 

$

(26,997

)

 

$

28,646

 

 

$

(59,305

)

 

$

15,850

 

Net income (loss) per share - basic

 

$

(0.62

)

 

$

0.93

 

 

$

(1.50

)

 

$

0.93

 

Net income (loss) per share - diluted

 

$

(0.62

)

 

$

0.88

 

 

$

(1.50

)

 

$

0.56

 

Weighted average number of common shares used in net income (loss) per share - basic

 

 

43,525,888

 

 

 

30,805,163

 

 

 

39,554,790

 

 

 

17,006,362

 

Weighted average number of common shares used in net income (loss) per share - diluted

 

 

43,525,888

 

 

 

32,513,113

 

 

 

39,554,790

 

 

 

28,240,947

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

4


 

Alder BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss)

(unaudited)

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

(in thousands)

 

Net income (loss)

$

(26,997

)

 

$

28,646

 

 

$

(59,305

)

 

$

15,850

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

72

 

 

 

14

 

 

 

82

 

 

 

(16

)

Foreign currency translation income (loss), net of tax

 

8

 

 

 

(8

)

 

 

(20

)

 

 

3

 

Total other comprehensive income (loss)

 

80

 

 

 

6

 

 

 

62

 

 

 

(13

)

Comprehensive income (loss)

$

(26,917

)

 

$

28,652

 

 

$

(59,243

)

 

$

15,837

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

5


 

Alder BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

Nine Months Ended

 

 

September 30,

 

 

2015

 

 

2014

 

 

(in thousands)

 

Operating activities

 

 

 

 

 

 

 

Net income (loss)

$

(59,305

)

 

$

15,850

 

Adjustments to reconcile net income (loss) to net cash used in operating activities

 

 

 

 

 

 

 

Depreciation and amortization

 

571

 

 

 

527

 

Loss on retirement of property and equipment

 

2

 

 

 

 

Stock-based compensation

 

4,124

 

 

 

758

 

Other non-cash charges, net

 

7

 

 

 

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

Accounts receivable

 

113

 

 

 

235

 

Prepaid expenses and other assets

 

(9,466

)

 

 

(5,083

)

Accounts payable

 

5,822

 

 

 

(539

)

Accrued liabilities

 

3,666

 

 

 

344

 

Deferred rent

 

(100

)

 

 

293

 

Deferred revenue

 

 

 

 

(48,001

)

Net cash used in operating activities

 

(54,566

)

 

 

(35,616

)

Investing activities

 

 

 

 

 

 

 

Purchases of investments

 

(180,500

)

 

 

(10,046

)

Proceeds from maturities of investments

 

15,105

 

 

 

 

Proceeds from sales of investments

 

250

 

 

 

 

Purchases of property and equipment

 

(722

)

 

 

(408

)

Net cash used in investing activities

 

(165,867

)

 

 

(10,454

)

Financing activities

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of offering costs

 

406,634

 

 

 

80,351

 

Deferred offering costs

 

36

 

 

 

 

Proceeds from exercise of stock options and employee stock purchase plan

 

995

 

 

 

42

 

Net cash provided by financing activities

 

407,665

 

 

 

80,393

 

Effect of exchange rate changes on cash

 

(20

)

 

 

3

 

Net increase in cash and cash equivalents

 

187,212

 

 

 

34,326

 

Cash and cash equivalents

 

 

 

 

 

 

 

Beginning of period

 

46,795

 

 

 

23,227

 

End of period

$

234,007

 

 

$

57,553

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

 

Offering costs included in accounts payable and accrued liabilities

$

 

 

$

92

 

 

 

 

 

 

 

 

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 $215.9 million in net proceeds, after deducting underwriting discounts and commissions of $13.8 million and offering expenses of $0.3 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 Report 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 nine months ended September 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 nine months ended September 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. In August 2015, the FASB issued ASU 2015-14 delaying the effective date for adoption by one year. The guidance is now 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, using the full retrospective or modified retrospective method. 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.  The Company will no longer be able to take advantage of this exemption beginning on December 31, 2015, when the Company 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 nine months ended September 30, 2014, the Company recognized revenue related to the BMS agreement in the amount of $38.8 million and $48.1 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 Income (Loss) Per Share

Basic net income (loss) per share is calculated by dividing net income (loss) by the weighted average common shares outstanding during the period, without consideration for common stock equivalents. Diluted net income (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

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss) (in thousands)

$

(26,997

)

 

$

28,646

 

 

$

(59,305

)

 

$

15,850

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding - basic

 

43,525,888

 

 

 

30,805,163

 

 

 

39,554,790

 

 

 

17,006,362

 

Dilutive effect of common shares from preferred stock

 

 

 

 

 

 

 

 

 

 

9,729,287

 

Dilutive effect of common shares from employee stock

   purchase plan

 

 

 

 

9,698

 

 

 

 

 

 

3,743

 

Dilutive effect of common shares from stock options

 

 

 

 

1,698,252

 

 

 

 

 

 

1,501,555

 

Weighted-average common shares outstanding -diluted

 

43,525,888

 

 

 

32,513,113

 

 

 

39,554,790

 

 

 

28,240,947

 

Net income (loss) per share - basic

$

(0.62

)

 

$

0.93

 

 

$

(1.50

)

 

$

0.93

 

Net income (loss) per share-diluted

$

(0.62

)

 

$

0.88

 

 

$

(1.50

)

 

$

0.56

 

 

9


 

The following weighted average numbers of outstanding stock options were excluded from the calculation of diluted net loss per share for the three and nine months ended September 30, 2015 and 20 14 because including them would have had an anti-dilutive effect.

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

September 30,

 

 

September 30,

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Stock options

 

2,843,263

 

 

 

 

 

 

2,895,160

 

 

 

 

 

 

2,843,263

 

 

 

 

 

 

2,895,160

 

 

 

 

 

 

 

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 September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable certificates of deposit maturing in

   one year or less

 

$

17,230

 

 

$

6

 

 

$

(1

)

 

$

17,235

 

Negotiable certificates of deposit maturing after

   one year through two years

 

 

1,750

 

 

 

 

 

 

 

 

 

1,750

 

U.S. government agency obligations maturing in

   one year or less

 

 

54,913

 

 

 

28

 

 

 

 

 

 

54,941

 

U.S. government agency obligations maturing after

   one year through two years

 

 

100,218

 

 

 

69

 

 

 

(28

)

 

 

100,259

 

Total available-for-sale securities

 

$

174,111

 

 

$

103

 

 

$

(29

)

 

$

174,185

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 nine months ended September 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 September 30, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

229,293

 

 

$

 

 

$

 

 

$

229,293

 

Short term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable certificates of deposit

 

 

 

 

 

17,235

 

 

 

 

 

 

17,235

 

U.S. government agency obligations

 

 

 

 

 

54,941

 

 

 

 

 

 

54,941

 

Long term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable certificates of deposit

 

 

 

 

 

1,750

 

 

 

 

 

 

1,750

 

U.S. government agency obligations

 

 

 

 

 

100,259

 

 

 

 

 

 

100,259

 

 

 

$

229,293

 

 

$

174,185

 

 

$

 

 

$

403,478

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 and U.S. government agency obligations 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.

Our lead clinical candidate, ALD403, inhibits a well validated molecule shown to trigger migraine attacks, calcitonin gene-related peptide (CGRP), and is currently undergoing Phase 2b clinical testing for the treatment of chronic migraines. We have initiated a pivotal trial for the treatment of frequent episodic migraine and plan to initiate additional advanced clinical trials for ALD403 in frequent episodic and chronic migraines. ALD403 has been evaluated in three 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


 

ALD403 Infusio n Formulation Development Strategy

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

Frequent Episodic Migraine

United States

163

Completed

 

 

 

 

 

 

 

ALD403

Infusion

Phase 2b

Chronic Migraine

Various

600

On-going

 

 

 

 

 

 

 

ALD403

Infusion

Pivotal

PROMISE 1

Frequent Episodic Migraine

Various

600

On-going

 

 

 

 

 

 

 

ALD403

Infusion

Pivotal

PROMISE 2

Chronic Migraine

Various

450

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 frequent episodic migraine. We currently have an on-going Phase 2b dose-ranging trial for the preventative treatment of chronic migraines. This clinical trial is fully enrolled and top-line results are expected in the first quarter of 2016.  We have received input from the U.S. Food and Drug Administration, or FDA, on a development path forward to support a Biologics License Application, or BLA, submission for our infusion formulation of ALD403. We have initiated a pivotal, double-blind, placebo-controlled, randomized, dose-ranging clinical trial utilizing an infusion formulation of ALD403 administered quarterly for the treatment of frequent episodic migraine, called the PROMISE 1 trial, and plan to initiate a pivotal trial for the treatment of chronic migraine in the second half of 2016, to be called the PROMISE 2 trial.

ALD403 Self-administration Formulation Development Strategy

Trial

 

Formulation

 

Stage of Development

 

Trial Population

 

Study

Locations

 

Subjects

 

Trial
Status

 

ALD403

Self-administration

Phase 1

Healthy Subjects

Australia

60

Completed

 

 

 

 

 

 

 

ALD403

Self-administration

Phase 1

Healthy Subjects

Australia

60

On-going

 

 

 

 

 

 

 

ALD403

Self-administration

TBD

Frequent Episodic Migraine

Various

TBD

Planned

 

 

 

 

 

 

 

 

We currently have an on-going 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 first quarter of 2016.  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 frequent episodic migraine patients. This trial will commence in mid-2016 with top-line data anticipated in 2017.

 


13


 

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 arthrit is, or PsA. In November 2009, we entered into a license and collaboration agreement with BMS, under which we granted BMS worldwide exclusive right s to develop and commercialize c lazakizumab for all indications other than cancer. On August 29, 2014, BMS not ified us that it had elected to terminate the license and collaboration agreement effective as of December 29, 2014, or the Termination Da te, at which time all rights to c lazakizumab were returned to us. Under the terms of the agreement, BMS was responsibl e 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 c lazakizumab.

 

ALD1613 is a genetically engineered monoclonal antibody developed by us that is designed to specifically inhibit Adrenocorticotropic Hormone, or ACTH, for the treatment of two orphan diseases: Cushing’s Disease and Congenital Adrenal Hyperplasia or CAH. Cushing’s disease is driven by long-term exposure to cortisol as a result of increased expression of ACTH produced by a pituitary tumor. CAH is a disease resulting from a mutation in cortisol synthetic enzymes that causes overproduction of ACTH.  We believe a novel, mechanism-based approach to address ACTH-driven diseases could 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.

 

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

 

As of September 30, 2015, we had an accumulated deficit of $196.2 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.

 


14


 

Financial Operations Overview

Revenues

We did not recognize any revenue in the three or nine months ended September 30, 2015. We recognized $38.8 million and $48.3 million in revenue for the three and nine months ended September 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.

We use our employee and infrastructure resources across multiple research and development programs 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, CMOs 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, however, 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 ALD1613 and 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

15


 

trials of our product candidates. The duration, costs and timing of clinical trials and development of our product candidates wi ll 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 Nine months Ended September 30, 2015 and 2014

Revenues

We did not recognize any revenue in the three and nine months ended September 30, 2015. Revenues for the three and nine months ended September 30, 2014 were $38.8 million and $48.3 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.

Research and Development Expenses

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

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2015

 

 

2014

 

 

% change

 

 

2015

 

 

2014

 

 

% change

 

 

 

(dollars in thousands)

 

 

 

 

 

 

(dollars in thousands)

 

 

 

 

 

 

External costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ALD403

$

13,870

 

 

$

2,522

 

 

 

450

%

 

$

25,065

 

 

$

8,921

 

 

 

181

%

 

ALD1613

 

1,862

 

 

 

 

 

 

 

 

 

3,918

 

 

 

 

 

 

 

 

Clazakizumab

 

66

 

 

 

34

 

 

 

94

%

 

 

144

 

 

 

1,029

 

 

 

(86

%)

 

Unallocated internal costs:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preclinical discovery and development

 

3,584

 

 

 

2,779

 

 

 

29

%

 

 

9,914

 

 

 

8,572

 

 

 

16

%

 

Pharmaceutical operations

 

2,656

 

 

 

1,302

 

 

 

104

%

 

 

6,918

 

 

 

3,766

 

 

 

84

%

 

Clinical development

 

814

 

 

 

410

 

 

 

99

%

 

 

2,016

 

 

 

1,156

 

 

 

74

%

 

Total research and development expenses

$

22,852

 

 

$

7,047

 

 

 

224

%

 

$

47,975

 

 

$

23,444

 

 

 

105

%

 

 

 

Research and development expenses increased by $15.8 million, or 224%, for the three months ended September 30, 2015 compared to the same period of 2014. During the three months ended September 30, 2015, external costs for ALD403 increased $11.3 million.  The increased level of spending was primarily due to an additional $8.8 million in clinical trial costs and an additional $2.4 million in manufacturing costs incurred to advance our Phase 2 program for migraine.  External costs for ALD1613 increased $1.9

16


 

million , which includ ed an additional $1. 5 million for costs related to drug supply to advance our preclinical program s for two orphan diseases: Cushing’s d isease and CAH .  Unallocated int ernal costs also increased by $2 .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 $24.5 million, or 105%, for the nine months ended September 30, 2015 compared to the same period of 2014. During the nine months ended September 30, 2015, external costs for ALD403 increased $16.1 million.  The increased level of spending was primarily due to an additional $14.5 million in clinical trial costs and an additional $1.3 million in manufacturing costs incurred to advance our Phase 2 program for migraine.  External costs for ALD1613 increased $3.9 million which included an additional $3.5 million for costs related to drug supply to advance our preclinical program for programs for two orphan diseases: Cushing’s disease and CAH.  Unallocated internal costs also increased by $5.4 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 37%, for the three months ended September 30, 2015 compared to the same period of 2014.  The increase was primarily due to an increase in stock-based compensation and additional administrative costs and fees to operate as a public company.  

General and administrative expenses increased by $2.9 million, or 32%, for the nine months ended September 30, 2015 compared to the same period of 2014.  The increase was primarily due to increases in stock-based compensation and salaries and additional administrative costs and fees to operate as a public company.  

Interest Income

The increases in interest income for the three and nine months ended September 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 (Loss)

We recognized a net foreign currency loss of $0.2 million for the three months ended September 30, 2015 and a net foreign currency gain of $0.1 million for the nine months ended September 30, 2015. We maintain a bank account denominated in British pounds for purposes of settling certain obligations arising outside the United States. The net loss for the three months ended September 30, 2015 primarily reflects the impact of a decrease in the exchange rate for British pounds relative to U.S. dollars during the period. The net gain for the nine months ended September 30, 2015 primarily reflects the impact of an increase in the exchange rate for British pounds relative to U.S. dollars during the period.  We did not recognize a net foreign currency gain for the three and nine months ended September 30, 2014 because we 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 former collaboration partners.  As of September 30, 2015, we had available cash, cash equivalents and investments of $408.2 million, which consisted of cash, money market funds, negotiable certificates of deposit and U.S. government agency obligations. 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.