Alder Biopharmaceuticals
ALDER BIOPHARMACEUTICALS INC (Form: 10-Q, Received: 04/28/2016 16:07:44)

 

 

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 March 31, 2016

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

 

x

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

¨  (do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

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

As of April 22, 2016 the registrant had 49,971,008 shares of common stock, $0.0001 par value per share, outstanding.

 

 

 


 

Alder BioPharmaceuticals, Inc.

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2016

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

18

 

Item 4.

 

 

Controls and Procedures

19

 

PART II. OTHER  INFORMATION

 

 

Item 1.

 

 

Legal Proceedings

20

 

Item 1A.

 

 

Risk Factors

20

 

Item 6.

 

 

Exhibits

45

 

SIGNATURES

46

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)

 

 

 

 

 

 

 

 

 

 

March 31,

 

 

December 31,

 

 

2016

 

 

2015

 

 

(in thousands, except share and per share data)

 

Assets

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

Cash and cash equivalents

$

178,035

 

 

$

206,492

 

Short-term investments

 

125,119

 

 

 

98,680

 

Prepaid expenses and other assets

 

16,572

 

 

 

17,029

 

Total current assets

 

319,726

 

 

 

322,201

 

Long-term investments

 

50,103

 

 

 

75,840

 

Other assets

 

12

 

 

 

12

 

Property and equipment, net

 

2,511

 

 

 

1,974

 

Total assets

$

372,352

 

 

$

400,027

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

Accounts payable

$

9,648

 

 

$

4,727

 

Accrued liabilities

 

4,867

 

 

 

7,583

 

Deferred rent

 

62

 

 

 

62

 

Total current liabilities

 

14,577

 

 

 

12,372

 

Long-term deferred rent

 

124

 

 

 

138

 

Total liabilities

 

14,701

 

 

 

12,510

 

Commitments and contingencies

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Common stock; $0.0001 par value; 200,000,000 shares authorized; 43,758,152 and 43,706,789 shares issued and outstanding, respectively

 

4

 

 

 

4

 

Additional paid-in capital

 

613,452

 

 

 

610,390

 

Accumulated deficit

 

(255,739

)

 

 

(222,376

)

Accumulated other comprehensive loss

 

(66

)

 

 

(501

)

Total stockholders’ equity

 

357,651

 

 

 

387,517

 

Total liabilities and stockholders’ equity

$

372,352

 

 

$

400,027

 

 

 

 

 

 

 

 

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

 

 

 

March 31,

 

 

 

2016

 

 

2015

 

 

 

(in thousands, except share and per share data)

 

 

Revenues

 

 

 

 

 

 

 

 

Collaboration and license agreements

$

 

 

$

 

 

Operating expenses

 

 

 

 

 

 

 

 

Research and development

 

27,647

 

 

 

11,035

 

 

General and administrative

 

6,045

 

 

 

3,677

 

 

Total operating expenses

 

33,692

 

 

 

14,712

 

 

Loss from operations

 

(33,692

)

 

 

(14,712

)

 

Other income (expense)

 

 

 

 

 

 

 

 

Interest income

 

415

 

 

 

59

 

 

Foreign currency loss

 

(86

)

 

 

 

 

Total other income

 

329

 

 

 

59

 

 

Net loss

$

(33,363

)

 

$

(14,653

)

 

Net loss per share - basic and diluted

$

(0.76

)

 

$

(0.40

)

 

 

 

 

 

 

 

 

 

 

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

 

43,753,517

 

 

 

36,903,483

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

March 31,

 

 

2016

 

 

2015

 

 

(in thousands)

 

Net loss

$

(33,363

)

 

$

(14,653

)

Other comprehensive income (loss):

 

 

 

 

 

 

 

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

 

414

 

 

 

 

Foreign currency translation income (loss), net of tax

 

21

 

 

 

(14

)

Total other comprehensive income (loss)

 

435

 

 

 

(14

)

Comprehensive loss

$

(32,928

)

 

$

(14,667

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

5


 

Alder BioPharmaceuticals, Inc.

Condensed Consolidated Statements of Cash Flows

(unaudited)

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

 

(in thousands)

 

Operating activities

 

 

 

 

 

 

 

Net loss

$

(33,363

)

 

$

(14,653

)

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

 

 

 

 

 

 

 

Depreciation and amortization

 

235

 

 

 

195

 

Loss on retirement of property and equipment

 

 

 

 

2

 

Stock-based compensation

 

3,017

 

 

 

910

 

Other non-cash charges, net

 

20

 

 

 

 

Changes in operating assets and liabilities

 

 

 

 

 

 

 

Accounts receivable

 

 

 

 

113

 

Prepaid expenses and other assets

 

460

 

 

 

(4,164

)

Accounts payable

 

4,921

 

 

 

305

 

Accrued liabilities

 

(2,557

)

 

 

1,275

 

Deferred rent

 

(14

)

 

 

(32

)

Net cash used in operating activities

 

(27,281

)

 

 

(16,049

)

Investing activities

 

 

 

 

 

 

 

Purchases of investments

 

(6,566

)

 

 

(12,750

)

Proceeds from maturities of investments

 

6,250

 

 

 

1,225

 

Proceeds from sales of investments

 

 

 

 

250

 

Purchases of property and equipment

 

(931

)

 

 

(375

)

Proceeds from sale of property and equipment

 

5

 

 

 

 

Net cash used in investing activities

 

(1,242

)

 

 

(11,650

)

Financing activities

 

 

 

 

 

 

 

Proceeds from issuance of common stock, net of offering costs

 

 

 

 

190,770

 

Deferred offering costs

 

 

 

 

36

 

Proceeds from exercise of stock options and employee stock purchase plan

 

45

 

 

 

22

 

Net cash provided by financing activities

 

45

 

 

 

190,828

 

Effect of exchange rate changes on cash

 

21

 

 

 

(14

)

Net increase (decrease) in cash and cash equivalents

 

(28,457

)

 

 

163,115

 

Cash and cash equivalents

 

 

 

 

 

 

 

Beginning of period

 

206,492

 

 

 

46,795

 

End of period

$

178,035

 

 

$

209,910

 

 

 

 

 

 

 

 

 

Supplemental disclosures:

 

 

 

 

 

 

 

Offering costs included in accounts payable and accrued liabilities

$

 

 

$

25

 

Purchases of property and equipment included in accrued liabilities

$

188

 

 

$

 

 

 

 

 

 

 

 

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.

Public Offerings

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 $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 $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.

Subsequent to the end of the quarter, in April 2016, the Company completed an underwritten public offering of 6,182,795 shares of common stock, which included 806,451 shares the Company issued pursuant to the underwriters’ exercise of their option to purchase additional shares, at $23.25 per share.  The Company received approximately $134.6 million in net proceeds, after deducting underwriting discounts and commissions of $8.6 million and estimated offering expenses of $0.5 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, 2015 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.

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, 2015.

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 months ended March 31, 2016 are not necessarily indicative of the results to be expected for the full year or for any other period.

7


 

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.

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 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 ending after December 15, 2016. The Company is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall. This ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This ASU will become effective for annual periods beginning after December 15, 2017. The Company is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases. This ASU requires the recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. This ASU will become effective for annual periods beginning after December 15, 2018. The Company is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-08, Principal versus Agent Considerations (Reporting Revenue Gross versus Net). This ASU clarifies the implementation guidance on principal versus agent considerations. This ASU will become effective for annual periods beginning after December 15, 2017. The Company is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. This ASU addresses areas for simplification in several aspects of the accounting for share-based payment including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. This ASU will become effective for annual periods beginning after December 15, 2016. The Company is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements.

In April 2016, the FASB issued ASU 2016-10, Identifying Performance Obligations and Licensing. This ASU clarifies two aspects of ASU 2014-09, Revenue from Contracts with Customers (Topic 606): identifying performance obligations and the licensing implementation guidance. This ASU will become effective for annual periods beginning after December 15, 2017. The Company is currently evaluating the impact of the adoption of this ASU on its consolidated financial statements.

The Company has reviewed other recent accounting pronouncements and concluded that they are either not applicable to the business, or that no material effect is expected on the consolidated financial statements as a result of future adoption.

8


 

3 .

Net L oss 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

 

 

March 31,

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

Net loss (in thousands)

$

(33,363

)

 

$

(14,653

)

Denominator

 

 

 

 

 

 

 

Weighted-average common shares outstanding - basic and diluted

 

43,753,517

 

 

 

36,903,483

 

Net loss per share - basic and diluted

$

(0.76

)

 

$

(0.40

)

 

 

The following weighted average numbers of outstanding stock options and employee stock purchase plan awards were excluded from the calculation of diluted net loss per share for the three months ended March 31, 2016 and 2015 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.

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Stock options

 

3,748,232

 

 

 

2,846,627

 

Employee stock purchase plan

 

21,634

 

 

 

28,999

 

 

 

3,769,866

 

 

 

2,875,626

 

 

9


 

4 .

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 March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable certificates of deposit maturing in

   one year or less

 

$

14,250

 

 

$

4

 

 

$

(1

)

 

$

14,253

 

U.S. government agency obligations maturing in

   one year or less

 

 

110,909

 

 

 

11

 

 

 

(54

)

 

 

110,866

 

U.S. government agency obligations maturing after

   one year through two years

 

 

50,127

 

 

 

5

 

 

 

(29

)

 

 

50,103

 

Total available-for-sale securities

 

$

175,286

 

 

$

20

 

 

$

(84

)

 

$

175,222

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Type of security as of December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable certificates of deposit maturing in

   one year or less

 

$

17,250

 

 

$

 

 

$

(14

)

 

$

17,236

 

Negotiable certificates of deposit maturing after

   one year through two years

 

 

1,000

 

 

 

 

 

 

(1

)

 

 

999

 

U.S. government agency obligations maturing in

   one year or less

 

 

81,582

 

 

 

 

 

 

(138

)

 

 

81,444

 

U.S. government agency obligations maturing after

   one year through two years

 

 

75,166

 

 

 

 

 

 

(325

)

 

 

74,841

 

Total available-for-sale securities

 

$

174,998

 

 

$

 

 

$

(478

)

 

$

174,520

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 months ended March 31, 2016 and 2015.

 

 

5 .

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 March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

175,342

 

 

$

 

 

$

 

 

$

175,342

 

Short term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable certificates of deposit

 

 

 

 

 

14,253

 

 

 

 

 

 

14,253

 

U.S. government agency obligations

 

 

 

 

 

110,866

 

 

 

 

 

 

110,866

 

Long term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. government agency obligations

 

 

 

 

 

50,103

 

 

 

 

 

 

50,103

 

 

 

$

175,342

 

 

$

175,222

 

 

$

 

 

$

350,564

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As of December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

203,330

 

 

$

 

 

$

 

 

$

203,330

 

Short term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable certificates of deposit

 

 

 

 

 

17,236

 

 

 

 

 

 

17,236

 

U.S. government agency obligations

 

 

 

 

 

81,444

 

 

 

 

 

 

81,444

 

Long term investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Negotiable certificates of deposit

 

 

 

 

 

999

 

 

 

 

 

 

999

 

U.S. government agency obligations

 

 

 

 

 

74,841

 

 

 

 

 

 

74,841

 

 

 

$

203,330

 

 

$

174,520

 

 

$

 

 

$

377,850

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

 

6 .

Subsequent Events

 

In April 2016, the Company completed an underwritten public offering of 6,182,795 shares of common stock, which included 806,451 shares the Company issued pursuant to the underwriters’ exercise of their option to purchase additional shares, at $23.25 per share.  The Company received approximately $134.6 million in net proceeds, after deducting underwriting discounts and commissions of $8.6 million and estimated offering expenses of $0.5 million.

 

 

 

 

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, 2015 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.

We believe the clinical data obtained to date in our development program for ALD403, our wholly-owned lead product candidate, exhibits the potential to transform the way physicians treat migraine prevention.  ALD403 was discovered by Alder scientists and has achieved clinical proof-of-concept for patients experiencing migraine on 5-14 days per month (frequent episodic migraine).  On March 28, 2016, we announced positive top-line data from our Phase 2b clinical trial of patients experiencing 15 or more headache days per month of which at least 8 days per month are migraine (chronic migraine). The data demonstrated that ALD403 acted rapidly and prevented migraine over the entire 12 week study period, meeting both primary and secondary efficacy endpoints.  We also announced on March 28, 2016 positive Phase 1 clinical trial data demonstrating that the pharmacokinetics and pharmacodynamics by intravenous (IV), subcutaneous (SC) or intramuscular (IM) injection of ALD403 support a quarterly single injection dosing strategy.  We have additional ongoing trials with ALD403, including our first pivotal trial, PR evention O f M igraine via I ntravenous ALD403 S afety and E fficacy 1 (PROMISE 1), which commenced in October 2015.  

ALD403 is a genetically engineered monoclonal antibody for the prevention of migraine that blocks the calcitonin gene-related peptide (CGRP). Efficacy data from our Phase 2 proof-of-concept trial in patients with frequent episodic migraine and from our Phase 2b clinical trial in patients with chronic migraine established that ALD403 significantly reduced the number of days on which a migraine patient experiences migraines. In our Phase 2 proof-of-concept trial, 27-41% of patients experienced complete migraine-free relief (p<0.05), that is 100% suppression of migraine occurrence, in any given month and migraines were completely prevented in 16% of patients for the entire three month study period (p<0.001). The top-line 12-week data from our Phase 2b clinical trial confirmed the ability of ALD403 to deliver a high level of efficacy.  In that trial, 33% and 31% of chronic migraine patients dosed with  300 mg and 100 mg, respectively, of ALD403 experienced a 75% decrease in their migraines from an average of 16 or more migraine days per month (p<0.05).

Ongoing and future clinical trials are aimed at supporting our objective of regulatory approval of ALD403 at the earliest opportunity for the prevention of migraine in the subpopulation of migraineurs (approximately 13 million patients) who we believe to be candidates for a preventative migraine therapy. Assuming regulatory approval, we plan to commercialize ALD403 in the United States employing a specialty sales force targeting high-prescribing neurologists and headache centers and to seek one or more strategic arrangements for commercialization of ALD403 outside the United States.

We are also focusing our development efforts on ALD1613, a wholly-owned therapeutic antibody which targets adrenocorticotropic hormone (ACTH). We believe ALD1613 has the potential to treat patients with Congenital Adrenal Hyperplasia

12


 

and Cushing’s Disease. ALD1613 is undergoing Investigational New Drug (IND)-enabling preclinical studies, and we plan to submit an IND application with the U nited States Food and Drug Administration (FDA) for ALD1613 in 2016. Our third wholly-owned product candidate, clazakizumab, is designed to block the pro-inflammatory cytokine IL-6. Clazakizumab successfully completed two Phase 2b clinical trials establish ing proof-of-concept in patients with rheumatoid arthritis. We believe that clazakizumab has the potential for further development as a therapeutic agent for one or more additional diseases where high levels of IL-6 are believed to play a role. In late 201 4, all rights to clazakizumab were returned to us from Bristol-Myers Squibb Company, or BMS, following the termination of a license and collaboration agreement. We are actively pursuing strategic alternatives for the further development of clazakizumab to leverage its ability to effectively inhibit IL-6.

We were incorporated in 2002 and have not generated any product revenue. Through March 31, 2016, our operations have been primarily funded by $111.4 million in private placements of our convertible preferred stock, $486.9 million of net proceeds in public offerings and $135.0 million in upfront payments, milestones and research and development payments from our collaborators and government grants. In April 2016, we completed an underwritten public offering of 6,182,795 shares of common stock resulting in net proceeds of approximately $134.6 million, after deducting underwriting discounts, commissions and estimated offering expenses.

As of March 31, 2016, we had an accumulated deficit of $255.7 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, particularly the clinical development of ALD403 for the prevention of migraine.

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, ALD1613 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 and ALD1613 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 development programs or grant rights in the United States, as well as outside the United States, to our product candidates to one or more partners.

 

 

Financial Operations Overview

Revenues

We did not recognize any revenue in the three months ended March 31, 2016 and 2015. 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:

13


 

 

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 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 being 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 Months Ended March 31, 2016 and 2015

Revenues

We did not recognize any revenue in the three months ended March 31, 2016 and 2015.

14


 

Research and Development Expenses  

Research and development expenses increased incurred in the three months ended March 31, 2016 and 2015 were as follows:

 

 

Three Months Ended

 

 

 

 

 

 

March 31,

 

 

 

 

 

 

2016

 

 

2015

 

 

% change

 

 

(dollars in thousands)

 

 

 

 

 

External costs:

 

 

 

 

 

 

 

 

 

 

 

ALD403

$

14,290

 

 

$

4,936

 

 

 

190

%

ALD1613

 

3,805

 

 

 

416

 

 

 

815

%

Clazakizumab

 

42

 

 

 

21

 

 

 

100

%

Unallocated internal costs:

 

 

 

 

 

 

 

 

 

 

 

Preclinical discovery and development

 

4,386

 

 

 

3,146

 

 

 

39

%

Pharmaceutical operations

 

3,977

 

 

 

1,949

 

 

 

104

%

Clinical development

 

1,147

 

 

 

567

 

 

 

102

%

Total research and development expenses

$

27,647

 

 

$

11,035

 

 

 

151

%

 

 

Research and development expenses increased by $16.6 million, or 151%, for the three months ended March 31, 2016 compared to the same period in 2015. During the three months ended March 31, 2016, external costs incurred for ALD403 increased by $9.4 million, or 190%, primarily due to a $5.0 million increase in clinical trial costs related to our PROMISE 1 and other ongoing clinical trials and a $4.4 million increase in manufacturing costs for drug supply in support of planned and existing pivotal clinical trials. External costs for ALD1613 increased $3.4 million, primarily related to an increase in drug supply manufacturing and other pre-IND activities. Unallocated internal costs also increased by $3.8 million due primarily to an increase in salaries expense of $1.6 million as a result of an increase in our research and development headcount to support our programs under development and an increase in stock-based compensation expense of $1.2 million in the three months ended March 31, 2016 as a result of an increase in the fair value of our stock awards and also due to the increase in headcount.

General and Administrative Expenses

General and administrative expenses increased by $2.4 million, or 64%, for the three months ended March 31, 2016 compared to the same period of 2015. The increase was primarily due to an increase in stock-based compensation expense as a result of an increase in the fair value of our stock awards and due to an increase in headcount which also resulted in an increase in salaries expense. Market research and other administrative costs also increased in the three months ended March 31, 2016 over the prior year period.

Interest Income

The increase of $0.4 million in interest income for the three months ended March 31, 2016 compared to the same period of 2015 was primarily due to an increase in the average balances of cash, cash equivalents and investments.  

Foreign Currency Loss

Net foreign currency loss was $0.1 million for the three months ended March 31, 2016. We maintain a bank account denominated in British pounds for purposes of settling certain obligations arising outside the United States. The net loss in the 2016 period reflects the impact of a decrease in the exchange rate for British pounds relative to U.S. dollars during the period.

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 March 31, 2016, we had available cash, cash equivalents and investments of $353.3 million, which consisted of cash, money market funds, negotiable certificates of deposit and U.S. government agency obligations. In April 2016, we completed an underwritten public offering of 6,182,795 shares of common stock resulting in net proceeds of approximately $134.6 million, after deducting underwriting discounts, commissions and estimated offering expenses. 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.

 

15


 

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 or debt financing. We b elieve that our available cash, cash equivalents and investments will be sufficient to meet our projected operating requirements for at least the next twelve months. We have based this estimate on assumptions that may prove to be wrong, and we could utiliz e 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 pla nned. 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 fut ure funding requirements will depend on many factors, as we:

 

 

·

continue to prioritize the advancing clinical development of ALD403 for the prevention of migraine;

 

·

leverage the commercial potential of ALD403 by commercializing it for the prevention of migraine in the U.S., if approved by the FDA;

 

·

advance the development of ALD1613 for the treatment of Congenital Adrenal Hyperplasia and Cushing’s Disease;

 

·

seek strategic alternatives to advance and commercialize clazakizumab as a therapeutic option in autoimmune and inflammatory disease;

 

·

leverage our technology platform to discover future product candidates for areas of unmet need; and

 

·

build a leading biopharmaceutical company to transform current treatment paradigms.

 

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 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.

Historical Cash Flow Trends

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

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

Net cash used in operating activities

$

(27,281

)

 

$

(16,049

)

Net cash used in investing activities

 

(1,242

)

 

 

(11,650

)

Net cash provided by financing activities

 

45

 

 

 

190,828

 

Cash Used in Operating Activities

Net cash used in operating activities includes net loss, adjusted for non-cash charges and the changes in components of working capital.  Net cash used in operating activities was $27.3 million during the three months ended March 31, 2016 compared to $16.0 million during the same period in 2015. The $11.2 million increase in net cash used in operating activities in the three months ended March 31, 2016 compared to the same period in 2015 was driven primarily by an increase in net loss of $18.7 million due to increased spending in drug supply manufacturing and clinical trial costs for our ALD403 program, increased drug supply manufacturing for our ALD1613 programs and increased compensation costs attributable to increased headcount to support our programs under development.

16


 

Cash Used in Investing Activities

Net cash used in investing activities was $1.2 million and $11.7 million in the three months ended March 31, 2016 and 2015, respectively.  In the three months ended March 31, 2016 purchases of investments were $6.6 million, offset in part by $6.3 million in maturities of investments. In the three months ended March 31, 2015, purchases of investments used $12.8 million, offset in part by $1.5 million in sales and maturities of investments. Purchases of property and equipment used $0.9 million and $0.4 million in the three months ended March 31, 2016 and 2015, respectively. We anticipate increases in purchases of property and equipment for tenant improvements in support of additional leased space during 2016.

 

Cash Provided by Financing Activities

Net cash provided by financing activities in the three months ended March 31, 2016 was $45,000 due to the exercise of stock options.  Net cash provided by financing activities in the three months ended March 31, 2015 was $190.8 million primarily due to the underwritten public offering of our common stock in January 2015 in which we received net proceeds of $190.7 million.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of March 31, 2016.

Contractual Obligations

 

Our contractual obligations as of March 31, 2016 were as follows:

 

 

 

 

 

 

 

Less Than

 

 

 

 

 

 

 

 

 

 

More Than

 

 

 

Total

 

 

1 Year

 

 

1-3 Years

 

 

3-5 Years

 

 

5 Years

 

 

 

(in thousands)

 

Operating lease obligations (1)

 

$

2,475

 

 

$

982

 

 

$

1,493

 

 

$

 

 

$

 

License agreements (2)

 

 

675

 

 

 

50

 

 

 

150

 

 

 

150

 

 

 

325

 

Purchase obligations (3)

 

 

12,097

 

 

 

12,097

 

 

 

 

 

 

 

 

 

 

Contract manufacturing obligations (4)

 

 

57,255

 

 

 

57,255

 

 

 

 

 

 

 

 

 

 

Total contractual obligations

 

$

72,502

 

 

$

70,384

 

 

$

1,643

 

 

$

150

 

 

$

325

 

 

(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.

(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. Includes estimated purchase obligations as of March 31, 2016 under an agreement with a third-party contract manufacturing organization for larger scale production of ALD403 that became effective during the three months ended March 31, 2016.  We expect to incur additional purchase obligations relating to future purchase orders under such agreement.

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 United States general accepted accounting principles. 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 March 31, 2016, 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, 2015, 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.

17


 

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.  

 

 

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 March 31, 2016, we had cash, cash equivalents and investments of $353.3 million consisting of cash, money market accounts, and negotiable certificates of deposit in highly rated financial institutions in the United States and U.S. government agency obligations. A portion of our investments may be subject to interest rate risk and could fall in value if market interest rates increase. We have estimated the effect on our investment portfolio of a hypothetical increase in interest rates by one percent to be a reduction of $1.2 million in the fair value of our investments as of March 31, 2016. In addition, a hypothetical decrease of 10% in the effective yield of our investments would reduce our expected investment income by approximately $0.2 million over the next twelve months based on our investment balance at March 31, 2016.

 

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 and in Switzerland. 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 March 31, 2016, we held the U.S. dollar equivalent of $1.7 million in British pounds. A hypothetical 10% change in the exchange rate between the U.S. dollar and the British pound from the March 31, 2016 rate would have increased/decreased our unrealized foreign currency loss on our holdings of British pounds by approximately $0.2 million. We generally transfer funds to our Australian subsidiary to fund operating needs within 30 days of disbursement. The cash balance held by our Australian subsidiary is denominated in Australian dollars and is also subject to exposure due to fluctuations in exchange rates. For the three months ended March 31, 2016, we recorded a net foreign currency loss of $0.1 million in our consolidated statements of operations.

 

 


18


 

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 March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, 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.

 

 

 

 

 

19


 

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 Need for Additional Financing and Our Financial Results

 

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 three months ended March 31, 2016, our net loss was $33.4 million and as of March 31, 2016 we had an accumulated deficit of $255.7 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 ALD403 and our other 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 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.

 

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 ALD1613 and 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 March 31, 2016, we had $353.3 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, for at least the next 12 months. 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

 

 

the emergence of competing technologies or other adverse market developments.

 

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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 offerings, debt financings, collaborations, strategic alliances, licensing arrangements and other marketing and distribution arrangements. Additional financing may not be available to us when we need it or it may no t be available on favorable terms. If 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 certain valuable rights t o our product candidates, technologies, future revenue streams or research programs or grant licenses on terms that may not be favorable to us. If we raise additional capital through public or private equity offerings, the ownership interest of our existin g stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, buying or selling assets, making capital expenditures or declaring dividends. If we are unable to obtain adequate financing when needed, we may have to delay, reduce the scope of, suspend or eliminate one or more of our clinical trials or research and development programs or our commercialization efforts.

 

In addition, our clinical trials for ALD403 may encounter manufacturing, enrollment or other issues that could cause our development costs to increase more than we expect. We do not have sufficient cash to complete the clinical development of any of our product candidates and will require additional funding in order to complete the development activities required for regulatory approval of ALD403 or any future product candidates that we develop independently. We intend to prioritize our development efforts on ALD403, both in terms of funding and attention of management and our organization. Because successful development of our product candidates is uncertain, we are unable to estimate the actual funds we will require to complete research and development and commercialize our product candidates.

 

Furthermore, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

 

Our ability to use our net operating loss and tax credit carryforwards to offset future taxable income may be subject to certain limitations.

 

As of December 31, 2015, we had U.S. net operating loss carryforwards, or NOLs, of $229.8 million, which may be used to offset future taxable income or offset income taxes due. In addition, we have U.S. research and development tax credit carryforwards of $8.9 million. These NOLs and tax credit carryforwards expire in various years beginning in 2024, if not utilized. Utilization of the NOLs and tax credit carryforwards may be subject to an annual limitation due to historical or future ownership change rules pursuant to Sections 382 and 383 of the Internal Revenue Code, or the Code. We performed a section 382 ownership analysis through 2015 and determined that an ownership change occurred in 2005. Based on the analysis performed, however, we do not believe that the Section 382 annual limitation will impact our ability to utilize the tax attributes that existed as of the date of the ownership change in a material manner. If we have experienced an ownership change in the past or will experience an ownership change as a result of future changes in our stock ownership, some of which changes are outside our control, the tax benefits related to the NOLs and tax credit carryforwards may be further limited or lost.

 

Risks Related to ALD403 and Our Other Product Candidates

 

If ALD403 is not successfully commercialized, our business will be harmed.

 

ALD403 is our only product candidate we currently have in clinical trials. We have invested a significant portion of our efforts and financial resources into the development of ALD403 to prevent migraines. Our ability to generate revenues from products, which we do not expect to occur for the foreseeable future, if ever, will depend heavily on the successful development, regulatory approval and eventual commercialization of ALD403. The success of ALD403 and our other product candidates will depend on several factors, including the following:

 

 

successful enrollment in, and completion of, clinical trials, including our PROMISE 1 and PROMISE 2 trials;

 

 

our ability to reach agreements with the FDA and other regulatory authorities on the appropriate regulatory path for approval for ALD403;

 

 

receipt of approvals from the FDA and similar regulatory authorities outside the United States for these product candidates;

 

 

establishing commercial manufacturing arrangements with third parties;

 

 

successfully launching sales, marketing and distribution of any product candidate that may be approved, whether alone or in collaboration with others;

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acceptance of any approved product by the medical community, third-party payors and patients and others involved in the reimbursement process, such as the Centers for Medicare and Medicaid Services in the United States and the National Institute of Clinical Excellence in the United Kingdom;

 

 

effectively competing with other therapies;

 

 

achieving a continued acceptable safety profile of the product following approval; and

 

 

obtaining, maintaining, enforcing and defending intellectual property rights and claims, including intellectual property we license from third parties.

 

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

 

If clinical trials of ALD403 or any of our other product candidates fail to demonstrate safety and efficacy to the satisfaction of the FDA or similar regulatory authorities outside the United States or do not otherwise produce positive results, we may incur additional costs or experience delays in completing, or ultimately be unable to complete, the development and commercialization of our product candidates.

 

Before obtaining regulatory approval for the sale of ALD403 or any of our other product candidates, we or any of our future collaborators must conduct extensive clinical trials to demonstrate the safety and efficacy of our product candidates in humans. Clinical trials are expensive, difficult to design and implement, can take many years to complete and are uncertain as to outcome. A failure of one or more of such clinical trials could occur at any stage of evaluation. The outcome of preclinical testing and early clinical trials may not be predictive of the success of later clinical trials, and interim results of a clinical trial do not necessarily predict final results.

 

In some cases, we utilize novel mechanisms of action to treat diseases that have not previously been addressed by antibody therapies. We or any of our future collaborators may experience numerous unforeseen events during, or as a result of, clinical trials that could delay or prevent our or any of our future collaborators’ ability to receive regulatory approval or commercialize our product candidates, including the following:

 

 

clinical trials of our product candidates may produce negative or inconclusive results, and we or any of our future collaborators may decide, or regulators may require us, to conduct additional clinical trials or abandon product development programs;

 

 

the number of patients required for clinical trials of our product candidates may be larger than we or any of our future collaborators anticipate, enrollment in these clinical trials may be insufficient or slower than anticipated or patients may drop out of these clinical trials at a higher rate than anticipated;

 

 

the cost of clinical trials of our product candidates may be greater than anticipated;

 

 

third-party contractors may fail to comply with regulatory requirements or meet their contractual obligations to us or any of our future collaborators in a timely manner, or at all;

 

 

we or any of our future collaborators might have to suspend or terminate clinical trials of our product candidates for various reasons, including a finding that our product candidates have unanticipated serious side-effects or other unexpected characteristics or that the patients are being exposed to unacceptable health risks;

 

 

regulators may not approve our or any of our future collaborators’ proposed clinical development plans;

 

 

regulators or institutional review boards may not authorize us, any of our future collaborators or our investigators to commence a clinical trial or conduct a clinical trial at a prospective site;

 

 

regulators or institutional review boards may require that we, any of our future collaborators or our investigators suspend or terminate clinical research for various reasons, including noncompliance with regulatory requirements; and

 

 

the supply or quality of our product candidates or other materials necessary to conduct clinical trials of our product candidates may be insufficient or inadequate.

 

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If we or any of our future collaborators are required to conduct additional clinical trials or other testing of our product candidates beyond those currently contempl ated, if we or any of our future collaborators are unable to successfully complete clinical trials of our product candidates or other testing, if the results of these trials or tests are not positive or are only modestly positive or if there are safety con cerns, we or any of our future collaborators may:

 

 

be delayed in obtaining regulatory approval for our product candidates;

 

 

not obtain regulatory approval at all;

 

 

obtain regulatory approval for indications that are not as broad as intended;

 

 

have the product removed from the market after obtaining regulatory approval;

 

 

be subject to additional post-marketing testing requirements; or

 

 

be subject to restrictions on how the product is distributed or used.

 

Our product development costs will also increase if we experience delays in testing or approvals. We do not know whether any clinical trials will begin as planned, will need to be restructured or will be completed on schedule, or at all. Significant clinical trial delays also could shorten any periods during which we or any of our future collaborators may have the exclusive right to commercialize our product candidates or allow our competitors to bring products to market before we or any of our future collaborators do, which would impair our or any of our future collaborators’ ability to commercialize our product candidates and harm our business and results of operations.

 

The development and commercialization of biologic products is subject to extensive regulation, and we may not obtain regulatory approvals for ALD403 or any of our other product candidates.

 

The clinical development, manufacturing, labeling, packaging, storage, recordkeeping, advertising, promotion, export, import, marketing and distribution and other possible activities relating to ALD403 and any other product candidate that we may develop in the future are subject to extensive regulation in the United States. Biologics, like ALD403, require the submission of a Biologics License Application, or BLA, to the FDA and such product candidates are not permitted to be marketed in the United States until approval from the FDA of a BLA for that product has been obtained. A BLA must be supported by extensive preclinical and clinical data, as well as extensive information regarding chemistry, manufacturing and controls, or CMC, sufficient to demonstrate the safety, purity, potency and effectiveness of the applicable product candidate to the satisfaction of the FDA. We have not submitted an application for approval or obtained FDA approval for any product. This lack of experience may impede our ability to obtain FDA approval in a timely manner, if at all, for ALD403 and our future product candidates.

 

Regulatory approval of a BLA is not guaranteed, and the approval process is an expensive and uncertain process that may take several years. The FDA and foreign regulatory entities also have substantial discretion in the approval process. The number and types of preclinical studies and clinical trials that will be required for BLA approval varies depending on the product candidate, the disease or the condition that the product candidate is designed to target and the regulations applicable to any particular product candidate. Despite the time and expense associated with preclinical studies and clinical trials, failure can occur at any stage, and we could encounter problems that require us to repeat or perform additional preclinical studies or clinical trials or generate additional CMC data. The FDA and similar foreign authorities could delay, limit or deny approval of a product candidate for many reasons, including because they:

 

 

may not deem the product candidate to be adequately safe or effective;

 

 

may not find the data from preclinical studies, clinical trials or CMC data to be sufficient to support a claim of safety and efficacy;

 

 

may not approve the manufacturing processes or facilities associated with the product candidate;

 

 

may conclude that the long-term stability of the formulation of the drug product for which approval is being sought has been sufficiently demonstrated;

 

 

may change approval policies or adopt new regulations; or

 

 

may not accept a submission due to, among other reasons, the content or formatting of the submission.

 

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To market any biologics outside of the United States, we and any of our future collaborators must comply with the numerous and varying regulatory and compliance related requirements of other cou ntries. Approval procedures vary among countries and can involve additional product testing and additional administrative review periods, including obtaining reimbursement and pricing approval in select markets. The time required to obtain approval in othe r countries might differ from that required to obtain FDA approval. The regulatory approval process in other countries may include all of the risks associated with FDA approval as well as additional, presently unanticipated, risks. Regulatory approval in o ne country does not ensure regulatory approval in another, but a failure or delay in obtaining regulatory approval in one country may negatively impact the regulatory process in others, including the risk that our product candidates may not be approved for all indications requested and that such approval may be subject to limitations on the indicated uses for which the product may be marketed.

 

The results of clinical trials conducted at sites outside the United States may not be accepted by the FDA and the results or clinical trials conducted at sites inside the United States may not be accepted by international regulatory authorities.

 

We have conducted, and may in the future choose to conduct, one or more of our clinical trials outside the United States.  Although the FDA may accept data from clinical trials conducted outside the United States, acceptance of this data is subject to certain conditions imposed by the FDA. For example, the clinical trial must be well-designed and conducted and performed by qualified investigators in accordance with ethical principles. The study population must also adequately represent the U.S. population, and the data must be applicable to the U.S. population and U.S. medical practice in ways that the FDA deems clinically meaningful. Generally, the patient population for any clinical trials conducted outside of the United States must be representative of the population for whom we intend to label the product in the United States. In addition, while these clinical trials are subject to the applicable local laws, FDA acceptance of the data will be dependent upon its determination that the trials also complied with all applicable U.S. laws and regulations. There can be no assurance the FDA will accept data from trials conducted outside of the United States. If the FDA does not accept the data from our or our collaborators’ international clinical trials, or if international regulatory authorities do not accept the data from our or collaborators’ U.S. clinical trials, it would likely result in the need for additional trials, which would be costly and time-consuming and could delay or permanently halt the development of a product candidate.

 

We face substantial competition, and others may discover, develop or commercialize products before or more successfully than we do.

 

The development and commercialization of new therapeutic products is highly competitive. We face competition with respect to ALD403 and our other current product candidates, and will face competition with respect to product candidates that we may seek to develop or commercialize in the future, from major pharmaceutical companies, specialty pharmaceutical companies and biotechnology companies worldwide. Our ability to compete may be affected in many cases by insurers or other third-party payors seeking to encourage the use of biosimilar products, which are expected to become available over the coming years. Many of our competitors are large pharmaceutical companies that have a greater ability to reduce prices for their competing drugs in an effort to maintain or gain market share and undermine the value proposition that drugs commercialized by us might otherwise be able to offer to payors.

 

Potential competitors also include academic institutions, government agencies and other public and private organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization. Many of these competitors are attempting to develop therapeutics for our target indications.

 

Currently in the United States, there are relatively few medications approved for the prevention of frequent episodic and chronic migraines. Most of the medications used today are generics that are prescribed for abortive treatment of migraines. Medications commonly used for prevention of frequent episodic and chronic migraine include beta blockers such as propranolol, marketed by Wyeth, and other treatments such as topiramate, marketed by Johnson & Johnson, and sodium valproate, marketed by Divalproex. In addition, Botox, marketed by Allergan, is approved for the prevention of chronic migraine and commonly prescribed for frequent episodic migraine. There are also several other companies, including Amgen, Lilly and Teva (Labrys), that have ongoing clinical trials for CGRP blocking therapies using monoclonal antibodies similar to ALD403. Other companies may be in later stages of development than we are or may progress their product candidates through clinical trials faster than our product candidates and, therefore, may obtain FDA or other regulatory approval for their products before we obtain approval for ours. For example, we are aware that Amgen initiated a Phase 3 clinical trial for its CGRP therapy in 2015.

 

Many of our competitors, including a number of large pharmaceutical companies that compete directly with us, have significantly greater financial resources and expertise in research and development, manufacturing, preclinical testing, conducting clinical trials, obtaining regulatory approvals and marketing approved products than we do. Our competitors may develop products that are more effective, safer, more convenient or less costly than any that we are developing or that would render our product candidates obsolete or non-competitive. It is possible that our competitors might get FDA or other regulatory approval for their products before us. Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller or early stage companies may also prove to be significant

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competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruitin g and retaining qualified scientific and management personnel, establishing clinical trial sites and patient enrollment for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

 

Delays in the enrollment of patients in our clinical trials could increase our development costs and delay completion of the trials and delays in enrollment of patients in any of our future collaborators’ clinical trials could delay completion of any of our future collaborators’ trials.

 

We may not be able to initiate or continue clinical trials for ALD403 or any of our other product candidates if we are unable to locate and enroll a sufficient number of eligible patients to participate in these trials as required by the FDA or other regulatory authorities. Even if we are able to enroll a sufficient number of patients in our clinical trials, if the pace of enrollment is slower than we expect, the development costs for our product candidates may increase and the completion of our trials may be delayed or our trials could become too expensive to complete.

 

For example, our ongoing PROMISE 1 trial for ALD403 for the treatment of frequent episodic migraine sufferers is expected to enroll approximately 600 patients. We have never previously conducted trials of the magnitude of this ongoing trial and our other planned trials and can provide no assurance that we will be able to enroll patients at a sufficient pace to complete the clinical trials within our projected time frame. Completing ongoing and future migraine trials will require us to continue to activate new clinical trial sites and to enroll patients at forecasted rates at both new and existing clinical trial sites. Our forecasts regarding the rates of clinical site activation and patient enrollment at those sites are based on a number of assumptions, including assumptions based on experience with prior ALD403 clinical trials. However, there can be no assurance that those forecasts will be accurate or that we will complete, following collection of six month data, our ongoing and planned ALD403 trials on schedule. We anticipate obtaining primary endpoint data from the PROMISE 1 trial in the first half of 2017. During the initial months of this pivotal trial and our other clinical trials, the number of clinical sites activated and the number of patients enrolled at each clinical site per month could be lower than we have forecasted and, as a result, we might need to make a number of adjustments to the clinical trial plan, including increasing the number of clinical trial sites. We can provide no assurance that those adjustments will be sufficient to enable us to complete the trials within our anticipated time frame. If we experience delays in enrollment, our ability to complete the trials could be materially adversely affected.

 

If serious adverse side-effects, or SAEs, are identified during the development of ALD403 or any of our product candidates, we or any of our future collaborators may need to abandon development of that product candidate.

 

Our lead product candidate, ALD403 is still in clinical development and its risk of failure is high. It is impossible to predict when or if ALD403 or any of our existing or future product candidates will prove effective and safe enough to receive regulatory approval.

 

With respect to ALD403, while we have observed few SAEs to date, ALD403 has only been evaluated in a limited number of patients. The observed SAEs to date include inguinal hernia, kidney infection, transient ischemic attack, which is a precursor to stroke, conversion disorder, which is a mental health condition in which a person has blindness, paralysis, or other nervous system symptoms that cannot be explained by medical evaluation, chest pain, shortness of breath and wound infection.